Build a Track Record with No Outside Investor
INCUBATOR FUND FORMATION SERVICES
An incubator fund can offer first-time managers the opportunity to develop a track record that will be used to test trading strategies and prove performance and as a transition vehicle to launch a legally-compliant investment fund. Our flat, low fees will provide you with a complete package and include our preparation of all necessary entities and documents that will govern and operate the incubator fund.
WHAT IS AN INCUBATOR FUND?
An incubator fund is a private investment fund created by the sponsor using the sponsor's own money and formed for the purpose of creating a marketable track record. An important distinction between an incubator fund and a typical hedge fund is that incubator funds do not allow for any investor capital to be received into its accounts.
Incubator funds are typically formed similarly to a private equity fund or a hedge fund, meaning they are formed as a limited partnership with a general partner entity (an LLC) and an investment manager entity (a separate LLC). Because the track record must belong to and remain with one entity, we generally advise that incubator funds have an investment manager entity as part of the incubator fund. The incubator fund usually tracks its performance for a period of three months to one year or whenever the sponsor will have sparked sufficient investor intrigue to want to launch a fully-functional investment fund.
WHY FORM AN INCUBATOR FUND?
Sponsors may face potential liability from many actions they take, whether before, during, or after they launch an investment fund. To spark intrigue from investors, most sponsors will want to provide performance data, or a track record, to gain investor confidence in the sponsor’s skills in executing the fund’s strategies. Many sponsors may have proven one or more strategies through prior trading as an adviser, while working with a former fund, or conducting personal trades. Because the sponsor's track record was not created by the investment manager, the sponsor's prior track record can't be used by the sponsor or the investment fund to attract outside capital from investors.
Some strategies may not have been fully proven or are in a concept-type phase. These strategies will oftentimes be accompanied with back-tested data to show their value. Because the track record has little to no actual trading data, it can't be used to show the viability of the investment fund.
In either scenario, an incubator fund may offer the sponsor a way to test its strategies, build its track record, and prepare to launch a private investment fund with actual data that can be audited and remain with the investment manager.
At the time of the transition from an incubator fund to an operational hedge or private equity fund, the investment manager will remain intact and continue in its investment management role to the successive investment funds that can accept capital from investors.
TRANSITIONING TO A HEDGE FUND
After the formation of your incubator fund and if you choose to launch subsequent investment funds, we will advise you on important business and legal aspects of forming investment funds capable of accepting investor capital. See more on launching a hedge fund here, a private equity fund here, a real estate fund here, or an offshore fund here.
For more information on how we can assist you with your specific legal matters or questions, reach out to us here.
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