Handling capital calls can be challenging for fund managers raising capital from HNW/accredited investors. There are tradeoffs between taking in investor capital upfront or calling it small tranches. Curious to hear how others handle these situations.
Founder and CEO at Verivest. Administration and support services for private fund managers.
Had lunch with a client and an RIA they work with who has committed $7M (on the way to about $20M) to their closed ended multifamily fund. We got to discussing how to handle capital calls. The RIA was telling me how he/his clients had invested in Blackstone fund for retail investors and didn't like waiting around for months or years for the GP to call down their committed capital. How to handle this is a big issue for smaller/emerging funds and for HNW/accredited investors. The problem is that the widely accepted capital call structure from the institutional world does not work very well for HNW investors. When a person commits, say, $100,000 to a fund, they want to place/deploy that $100,000 while they have the cash available. They don't want to be obligated to fund it in small, unpredictable chunks over a impossible to determine in advance time period. $10,000 capital call here, $8,000 there, get $5,000 return of capital as part of true-up on a later close, get another $15,000 called later, etc. It just doesn't work well and is a recipe for investor frustration. This issue and so many others just do not translate one for one from the institutional fund world to the direct-from-issuer to retail investor fund world.
You can say that again.
7 Years in Pharma until I Escaped the 9 to 5 | I Help 217+ People Build Financial Freedom ($23.5M+) by Passively Investing in Multifamily Real Estate
1wEach approach has it's own pros and cons. Some fund managers prefer to take in investor capital upfront, while others favor calling it in smaller tranches. Taking in capital upfront can provide the fund manager with greater flexibility and predictability in deploying capital.