Hey, everyone! Today, I want to explain what a secondary fund is!
Check out my video to learn more about secondary funds!
A typical fund structure consists of a general partner and a limited partnership (partners or investors that put money into the fund).
The pool of capital is used to buy real estate, companies, or private equity. This same vehicle is used for hedge funds and venture capital funds as well!
Here’s the link for my fund structure video!
Secondary Fund Example
Let’s say an investor wants to pull out of a fund, resulting in a 50% penalty. Instead of pulling out $40 million, they would only get $20 million.
However, another party offers the investor $35 million to buy their position in the fund. The investor agrees, and they walk away with more cash.
It’s a win-win situation because the investor only loses $35 million instead of $20 million after giving up their position in the fund, and the other party gets in on the seasoned fund!
Click here to see how I did this with a tech fund!
3 Circles of a Fund
Understanding the 3 basic roles of a fund will help you decide if secondary funds are right for you…
- Expert investors
- Fund manager
- Capital raisers
“It doesn’t matter how many people are involved, but these 3 roles need to be filled.”Bridger Pennington
Investing in secondary funds is what it sounds like, an investment in the secondary party.
You don’t invest in real estate or tech companies or whatever; you are investing in the limited partnership or even the general management in some cases.
Also, I said in my video that…
“You get to diversify across a lot of different funds or companies. That’s one of the biggest benefits of a secondary fund model.”
That’s it! Click here to get my thorough breakdown!
See you soon
Want to get direct guidance for your fund? Schedule a time with my Fund Advisors!
DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.