If you’re a fund manager, a capital raiser, or someone who has access to a network of potential investors, you may already know how challenging it can be to raise significant capital consistently. Growing a capital-raising business involves complex legal requirements, investor trust, and the need to offer attractive opportunities that truly deliver.
This can feel overwhelming—especially when you hit a limit on your capital sources or struggle to find high-quality, scalable deals. Without the right tools and partners, raising capital might feel like pushing a boulder uphill.
This is where a Fund of Funds approach can make all the difference. In today’s article, I’ll help you understand what a “Fund of Funds” is, how you can use it to scale your capital raising, and how you can structure yours to benefit you and your investors.
Let’s do this.
Understanding a Fund of Funds
So what exactly is a Fund of Funds?
In the simplest terms, a Fund of Funds is a structure where a fund is created specifically to invest in other funds or deals.
Rather than investing directly in individual properties or assets, a Fund of Funds pools money from multiple investors to invest in larger deals, which might otherwise be inaccessible.
Here’s how it works: in a typical Fund of Funds model, you set up an entity—also called a Special Purpose Vehicle (SPV)—that invests in a particular multifamily asset alongside individual investors. Each Fund of Funds requires specific legal documents, including an operating agreement, private placement memorandum (PPM), and subscription documents to keep it compliant.
Here’s what you’ll be doing as a fund manager in a Fund of Funds:
- Setting up the fund entity
- Choosing and vetting assets to invest in
- Negotiating terms for the best return on investment
- Handling investor communication, distributions, and tax reporting
By creating a Fund of Funds, you can raise capital in a way that gives you control over the terms and offers investors a simple, compliant way to participate in larger deals.
Partnering with a Reliable Operator
When it comes to setting up a Fund of Funds, the operator you partner with plays a critical role. A skilled operator can support you in the capital-raising process, making your work easier and more efficient.
Look for operators who have:
- Experience: Someone with experience in different stages of the market cycle and who has successfully managed large numbers of multifamily units.
- Track record: Look for operators who have a history of solid performance, giving you credibility as you approach investors.
- In-house management: Someone who operates its own properties with full-time staff managing everything from asset oversight to investor relations.
How to Scale Your Capital Raising with a Fund of Funds
A Fund of Funds can streamline your work by allowing you to focus more on investor relationships and less on administrative hurdles. We at Nighthawk Equity just set up our own Fund of Fund structure, and here’s how we did it and how we can help you set up yours:
1. Done-for-you fund setup
Setting up a Fund of Funds requires proper legal structuring. Nighthawk Equity partners with legal and tax experts to handle your fund setup, helping you create the necessary documents to comply with regulations. You can focus on raising capital while we manage the technical details, from LLC formation to exemption filings.
2. Marketing and sales support
Creating a successful capital-raising campaign requires high-quality marketing materials and a solid presentation strategy. Nighthawk Equity provides templates for webinars, investor presentations, and even email campaigns to reach your network. We’ll support your live investor webinars and offer resources like video content to help build trust with investors. This marketing support saves you time and ensures a professional approach that attracts capital.
3. Investor relations
As a fund manager, staying on top of investor communication is very important. Nighthawk Equity provides tools like an investor dashboard, which includes everything from onboarding documents to distribution tracking. This dashboard helps you manage all investor interactions in one place, making it easy to handle regular updates, tax reporting, and more.
4. Tax and compliance support
Keeping up with tax requirements is key to running a compliant Fund of Funds. Nighthawk Equity offers tax support services to ensure timely filing and distribution of K-1s to investors. This means you don’t need to worry about the administrative burden of tax season—we’ve got you covered.
How Does the Fund of Funds Structure Benefit You and Your Investors?
A Fund of Funds structure lets you provide value to your investors while receiving compensation for your work by providing:
- Enhanced returns: By creating a special class of shares for your fund, you’ll receive terms that often yield higher returns than individual investors. This way, your investors get returns similar to those they would if they invested directly, while your fund remains profitable.
- Fees and compensation: You can add fees for fund setup and management, helping you earn income while covering expenses. Many fund managers charge an upfront due diligence fee, an annual fund management fee, and setup costs that align with legal and administrative expenses.
- Long-term profitability: With a typical hold period of around five years, a Fund of Funds can provide steady income and profitable growth, often resulting in approximately 10% returns over the duration.
Conclusion: Ready to Scale Your Capital Raising?
A Fund of Funds is a powerful tool to scale your capital-raising business, allowing you to invest in larger, more lucrative deals. If you’re committed to scaling your capital-raising business and partnering with a high-quality multifamily operator, let’s talk.
The next step is simple: complete a quick questionnaire and schedule a call with us. Let’s discuss your goals and see if this partnership could be the next big step in your journey.
Investing in multifamily real estate has never been easier. With the right partner and the right tools, you can transform your capital-raising efforts and scale like never before. Let’s make it happen together!
