What to ask before investing in a private fund

Interested in the First Mover Fund?

The difference between a well-structured private fund and a poorly structured one is not always visible in a deck or a one-page summary. It emerges in the offering documents — and in the answers you receive when you ask direct questions of the management team. The following is a framework for that process.

Strategy and sourcing

What is the fund's sourcing edge? A credible answer names specific relationships, geographic focus, or deal-type expertise — not generic references to 'proprietary deal flow.' How many investments does the fund intend to make, and what is the maximum position size? Concentration implies conviction; over-diversification implies uncertainty about edge. What is the target holding period, and what are the intended exit mechanisms?

Team and track record

What is the relevant prior experience of each key principal — not the firm's history, but the specific deals each person has led, underwritten, and managed? Where can you verify that track record independently? Has the team worked together before, or is this their first collaboration? Track record assembled across different teams at different firms tells you much less than track record from a stable team over time.

Fee structure and alignment

What is the management fee, and does it step down after the investment period? What is the carried interest rate, and what is the preferred return hurdle? Does the GP invest their own capital alongside investors — and if so, how much, and on what terms? Alignment is the most important structural question in any private fund. A GP who earns primarily from management fees is structurally different from one whose economics depend on fund performance.

Risks and disclosure

Ask the manager to describe the three scenarios in which this fund loses money. A manager who cannot answer that question fluently has not thought carefully about their own risk. Ask about key-man provisions: what happens if the lead principal leaves? Ask about conflicts of interest: does the manager manage other funds or vehicles that may compete for the same deals?

Legal and operational

Who is the fund administrator, and are NAV calculations independently verified? Who are the fund's auditors? Is the PPM counsel independent of the manager? These questions seem procedural, but they are the operational backbone of investor protection. A fund that manages all of these functions internally — without independent verification — requires a substantially higher level of trust in the management team.

The quality of a manager's answers to these questions is itself a data point. Evasiveness, deflection, or impatience with due diligence questions tells you something important about how the relationship will be managed after you invest. At VanderStyn, we welcome this process — and we will answer every question directly.