What is the current process for investing in a private fund?

The traditional process for how to invest in a fund works like this. I, as a sophisticated fund manager, go out and try to get people to invest in my fund. Eventually, they decide they're going to do it, and my lawyer will share a subscription document as well as a couple of other documents like the limited partnership agreement (LPA) with them over email or DocuSign.

The LPA says, “Here are the different terms that you're agreeing to when you sign up for the fund”. The subscription document consists of a series of questions around accreditation and qualification like, “Who are you? Why are you allowed to invest in my fund?” That’s 100 to 200 questions long, depending on the domicile and the fund strategies.

This document gets shared manually with investors, and not every question applies to everyone, so investors regularly fill out the wrong thing. They miss things they're supposed to respond to. Then when they return that document to the law firm to review it, the law firm kicks it back, and it ends up going through typically multiple rounds of revision.

The fund manager has a difficult time managing this process. First of all, they’re dealing with an investor who is frustrated because it's not clear what they're supposed to be doing or how they're supposed to respond to certain things.

It’s also difficult just tracking the raise. After I send a PDF out to somebody, I don't know if they're working on it. So not only am I having a hard time trying to manage the raise effectively, but I’m also having a hard time effectively managing all the different parties I need in the raise: my law firm, my investor, but also my IR team, the partners at our fund, my compliance team, and my fund administration team.

Lastly, what happens today is that—as we exchange these really sensitive documents over email—somebody inevitably gets BCC’ed or dropped off an email. Communications get lost in the ether.

That's the current process, and it is really expensive in terms of time. Everytime somebody screws something up, you add another couple of days or weeks to when it gets turned around, which delays how quickly you can bring in capital, which delays how quickly you can go do everything else.

That's the current process of investing in a private fund, and it's more or less the same whether you're investing in hedge, or venture, or real estate, or private equity.