What are private equity funds? And how to setup one?

What Are Private Equity Funds?

A private equity (PE) fund is an investment vehicle managed by a private equity firm (the adviser or fund manager). Like VC funds or Real Estate funds, PE funds pool capital from multiple investors to make collective investments. However, private equity differs in its focus on long-term, illiquid assets, typically with a 10+ year investment horizon.

Investment Strategies

PE funds commonly pursue one of two approaches:

1. Controlling Stakes: Acquiring majority ownership in established companies (portfolio companies) to actively manage and enhance their value.

2. Growth Capital: Taking minority positions in high-growth startups or expanding businesses.

Regulatory Transparency

While the adviser managing a PE fund may be SEC-registered, the fund itself is not. This exemption spares PE funds from public disclosure requirements, though details about registered advisers are publicly available. Information about a private equity fund’s adviser that is registered with the SEC is available here.

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How to structure a PE fund?

Private equity funds are typically structured as limited partnerships (LPs), where the private equity firm acts as the general partner (GP) managing the fund’s investments, while investors serve as limited partners (LPs) who contribute capital but have no control over day-to-day decisions—a framework that aligns incentives through profit-sharing (e.g., carried interest) while shielding LPs from liability.

What is next?

Step-by-Step:

1. Capital Commitments

   • LPs commit $100M to Alpha Ventures L.P..

   • The GP commits $1M (1%) as skin in the game.

2. Fund Makes an Investment

   • The GP (on behalf of the LP) decides to invest $10M in a startup called TechCo Pte. Ltd..

   • The investment is structured such that 10% of TechCo’s shares are acquired by the fund.

3. Legal Ownership of TechCo Shares

   • The shares in TechCo are legally held by Alpha GP Ltd. (as the GP), because the LP (fund) itself has no legal personality in Cayman (same concept applies in Singapore LPs, although slightly different in law).

   • However, this is only in a nominee or custodial capacity — not as a true owner.

4. Economic (Beneficial) Ownership

   • All the value of the TechCo shares belongs to the partnership (Alpha Ventures L.P.), which is composed of LPs and GP.

   • The LPs, by virtue of their interest in the fund, ultimately benefit from any gains on the TechCo investment (e.g., dividends, sale proceeds, IPO, etc.).

Conclusion

Launching a private equity (PE) fund is a task that demands strategic fund planning, regulatory compliance readiness, and operational discipline. The journey—from defining investment objectives, structuring the fund vehicle (such as a Limited Partnership or Variable Capital Company (VCC) or Cayman's Segregated Portfolio Company (SPC)), to raising capital from accredited investors or institutional investors, and executing rigorous portfolio management and exit strategies—requires a coordinated, methodical approach.

Setting up a private equity fund is not just about raising money—it’s about building a repeatable investment process that delivers risk-adjusted returns, reporting transparency, and investor trust. As an experienced accounting and corporate service firm in Singapore, we support fund managers through every stage: from fund vehicle setup, MAS compliance, tax structuring, and fund administration, to capital raising guidance via trusted U.S. placement agents. We help bring private equity strategies to life in a legally sound, tax-efficient, and globally competitive manner.

In limited partnerships, especially in places like the Cayman Islands, the partnership itself does not have separate legal personality. This means:

• The fund (the LP) cannot, in its own name, own property.

• Instead, the General Partner (GP) holds the legal title to the fund’s assets—including shares in holding companies—in its capacity as GP.

However:

• The GP does not own these assets for its own benefit.

• The assets are held on behalf of the partnership—i.e., on behalf of all the partners (mostly LPs, economically).

So:

• Legal title = held by the GP (as a trustee or nominee).

• Beneficial ownership = held by the partnership (LP + GP, with LPs holding the bulk of economic interest).

Exit Scenario (e.g., IPOs)

• The fund sells its 10% stake in TechCo for $50M.

• The sale proceeds go into the fund account.

• Proceeds are distributed:

  • LPs get their capital back + returns.

  • GP gets its carried interest (e.g., 20% of profits after hurdle).

Key Takeaways:

• The GP signs documents and holds assets in name, but does not economically own them.

• The LPs do not directly own any shares in TechCo — they own an interest in the fund, which in turn owns the TechCo shares.

• The fund vehicle (even if it lacks legal personality) is the beneficial owner of portfolio company shares.