What is a Private Fund?
Private Funds are a better way to manage investments for your high net worth clients. In the past, Investment Managers would offer hedge funds and private equity funds using a complicated and expensive LLC or LP structure. Private Funds are Reg D offerings, which means they are exempt from registration with the Securities and Exchange Commission (SEC).
Private Funds are subject to the same Reg D requirements as hedge funds and private equity funds but instead of being a partnership vehicle they are trusts. The result is an offering where Investment Managers and investors feel safer and more secure knowing that there is a trustee behind them.
Why Private Funds?
Turnkey setup, administration and compliance
Checks and balances between the Investment Manager and the Trustee provide peace of mind to investors
Efficient way to manage client assets
Multiple tax treatment options
Accommodates specialized investment offerings
Flexibility to design an investment offering with one or more of the following:
Minimum Investment Threshold
Management and Performance Fees
Traditional or Alternative Investments
Lock Up Periods
Exempt from SEC registration
Expand client list and gather more assets
Who Can Sponsor a Private Fund?
Registered Investment Advisers
Hedge Fund or Managers
Private Equity Fund Managers
Real Estate Developers
Non Profit Organizations
Companies or Corporations
Unlike a registered mutual fund there are no restrictions when it comes to investments. You may consider a Private Fund for the following types of investment strategies:
Derivatives (ie. Options, Swaps, Futures)
Oil & Gas
Other Hedge Funds
Loans & Mortgages
Other Private Equity Funds
Eligible Investors & Account Types
Private Funds are typically limited to Accredited Investors which are investors with a $1 million net worth (excluding their primary residence) or an annual income of over $200,000 annually. As long as an investor is accredited then any account type owned by that investor may be used to fund the subscription. Below are some examples:
Defined Benefit Plan
Private Funds FAQ
What is the difference between an Alta Trust private fund and a limited partnership or LLC?
Private Funds are subject to the Reg D rules like an LLC or LP. The main difference is that the vehicle is a trust and not a partnership or limited liability company. The trust structure gives the Sponsor and the investors more protections and more exibility. For instance an Alta Trust Private Fund:
• Provides for checks and balances by having a trustee (Alta Trust) in addition to the Sponsor
• Gives the option of having the Private Fund pay the taxes internally or pass through taxes to the investors
• Is a turnkey solution
• Is considerably more cost effective than establishing a partnership
• Provides a structure in which an RIA never takes custody
What types of investments can make up a Private Fund?
Virtually any type of security or investment can be held in a Private Fund. This includes equities, xed income, mutual funds, ETFs, international securities, options, futures, private equity, hedge funds, real estate and so forth.
What types of investors or accounts can invest in a Private Fund?
An investor must be an accredited investor ($1 million of net worth excluding personal residence or $200,000 in annual income) or a qualified purchaser ($5 million in investments) at the time of investment. As long as an investor meets one of these criteria, they can use virtually any account type to fund the investment.
Is there a limit to the number of investors?
To the extent that a Private Fund relies on the 3(c)1 exemption (accredited investors) the number of investors is capped at 100. A Private Fund relying on the 3(c)7 exemption (qualified purchasers) is capped at 1,999 investors.
Are there restrictions on fund subscriptions and redemptions?
There typically are but those restrictions are determined by the Sponsor. Subscriptions and redemptions must coincide with a valuation date, which is typically monthly or quarterly.
Can a Sponsor charge performance fees or invest in other offerings that charge performance fees?
Yes. If the Sponsor is a registered investment adviser (RIA), it can establish its preference for fees as long as the investors are all “quali ed clients,” which is an intermediate quali cation between accredited investors and quali ed purchasers. Non-RIAs can charge performance fees without meeting the quali ed client rule.
What is the Sponsor’s role?
The Sponsor is equivalent to the managing member of a limited liability company or general partner of a limited partnership and is responsible for 1) implementing and overseeing the investment strategy, 2) directing the trustee 3) and gathering assets into the Private Fund.
What are the typical cost savings?
The savings on the set up costs may be as high as 50% in some cases. The ongoing administration cost depends on a variety of factors but is typically 25% less than the average hedge fund administration cost. When other services such as compliance, custody, and performance reporting are considered, the value is much greater.
Can differing fees be charged to investors?
Yes, this is accomplished by issuing different share classes.
I have multiple investment strategies that I would like to offer in a pooled trust fund. Can you do that efficiently?
Yes, we do that by creating a series offering for the Sponsor, which means there are a series of separate funds that are all governed by the same master trust document.
Is it permissible to advertise the Private Fund?
Yes, under recent laws as long as certain guidelines are followed.
Who does the Private Fund partnership accounting and the fund valuation?
Alta Trust handles all of the accounting and fund administration.
Is an annual audit required?
No, but it may be in the fund’s best interest to have one. Alta Trust will take the primary role in coordinating with the independent audit rm and supporting the audit.
Do the same blue sky rules (state reporting and notification requirements) apply to Private Funds as they do to partnerships?
Yes, Alta Trust handles all necessary state lings.
Who handles the Private Fund compliance?
Alta Trust’s compliance department will provide assistance with the compliance and oversight of the Private Fund, subject to the Sponsor’s approval.
What are the reporting requirements to the investors?
Alta Trust is responsible for the statements, which are usually sent to the investors monthly or quarterly.
Can the Private Fund pay a commission for new assets?
Yes, as long as the recipient of the commission is registered with a broker/dealer.
Do I have to be a registered investment advisor to sponsor a Private Fund?
No, many types of investment professionals, companies, or entities may sponsor a Private Fund.