Private fund formation: a guide for families and high-net-worth individuals

The motivations behind setting up private investment funds are as diverse as the individuals and families who choose to do so. Ultimately, they all revolve around the desire to grow wealth, manage risk, and ensure a secure financial future. By understanding these motivations and the key considerations involved in setting up a private fund structure, investors can make informed decisions about whether this is the right choice for their specific needs.

What are the motivations for families and high-net-worth individuals?

1. Risk diversification & capital growth

One of the primary motivations for individuals and families to set up private investment funds is to diversify their risk and grow their capital. By investing in a small number of high-value investments, investors can potentially achieve significant returns while spreading their risk across different asset classes.

2. Family wealth preservation & succession

Private investment funds also serve as a valuable tool for preserving and passing on family wealth. By organising family assets within a fund, different family members can benefit from the growth of the investments and draw down on the capital as needed. This can be particularly useful for families with members at different stages of life, such as those in retirement or those with young children.

3. Tax planning

In some cases, setting up a private investment fund can offer tax benefits. While this may vary depending on the specific jurisdiction and the nature of the investments, it can be an additional factor to consider when making the decision to establish a fund.

What are the key considerations when choosing a private fund structure?

Choosing the right jurisdiction and fund structure for a private investment fund is a crucial decision for families and high-net-worth individuals to ensure their chosen structure meets their specific needs and achieves their investment goals.

1. Jurisdiction

The choice of jurisdiction for a private fund depends on various factors, such as the domicile of the investors, the desired regulatory regime, and the tax implications. For example, families from the Middle East may prefer a Cayman structure due to its simplicity and familiarity with local legal teams. On the other hand, London-based families might opt for a Channel Islands jurisdiction like Guernsey or Jersey due to their familiarity with the regulatory framework.

2. Fund structure

The most common fund structure is the General Partner Limited Partner (GP LP) structure. However, other options may be suitable depending on the specific needs of the investors. For example, a Cayman Special Purpose Vehicle (SPV) can be used for certain investment strategies.

3. Investment strategy

The investment strategy of the fund should align with the goals and objectives of the investors. Common investment strategies include private equity, family businesses, and other long-term holdings.

How can Ocorian help with private fund structures? 

Ocorian is on hand to support private funds with tax compliance, economic substance rules, and regulatory licensing requirements. Our private fund team has extensive experience in private fund formation and managing complex, high-value structures for international clients, while working in partnership with clients' trusted advisors. For more information, please reach out to the team.