Understanding fund management systems in private equity

February 15, 2023

Managing the private equity fund lifecycle from conception through the harvest period is rife with inefficient processes. Many fund management companies find themselves bogged down by manual tasks. Fortunately, as fund managers see more industry-specific tech come to the market, they’re adopting solutions to boost their efficiency and speed.

What is fund management?

Fund management involves overseeing a pool of money on behalf of individuals, companies, or other entities with the purpose of investing and maximizing returns.

The nuances of fund management vary by industry, client type, methods, and investment strategies.

Within financial services, fund management pertains to individuals and businesses that manage investments on behalf of investors. You’ll also hear this referred to as investment management and asset management.

What is a fund management company?

Investment management or asset management firms invest pooled funds from clients through various fund vehicles. Some of the largest investment management companies in the world based on assets under management include, in no particular order:

  • BlackRock
  • The Vanguard Group
  • UBS Group
  • Fidelity
  • State Street Global Advisors
  • Morgan Stanley
  • JPMorgan Chase
  • Allianz
  • Capital Group
  • Goldman Sachs
  • Bridgewater Associates

These large asset management firms offer various types of investment strategies, funds, and financial services. Their clients range from individuals saving for retirement to family offices and pension funds. They also offer alternative investment strategies involving credit, private equity, hedge funds, real estate, and infrastructure.

What is a fund manager?

The terms fund manager, asset manager, and investment manager often refer to an entire institution, such as BlackRock. However, the terms can also apply to smaller organizations that manage one or a few funds as well as to individual advisers who handle investment portfolios.

What is a private fund manager?

Private fund managers raise money from accredited investors and qualified purchasers, such as high-net-worth individuals, family offices, and institutions, to make long-term investments in companies or other assets. These firms are often active managers with either a controlling or influential relationship with the asset. For example, private equity funds that invest in a private company actively seek to improve the value of that business to benefit both the fund manager and investors in the future.

What is a private fund?

Private funds, such as venture capital, private equity, and hedge funds, are typically available to accredited investors and qualified purchasers only; and in some cases, fund managers are not required to register certain funds if they qualify for an exclusion from the definition of an investment company. These funds focus on long-term investment opportunities, and managers actively oversee venture capital and private equity funds to maximize returns.

The private equity fund lifecycle

When a firm launches a new private equity fund, it takes responsibility for the fund as the general partner. It identifies target companies, invests time and resources into the fund’s portfolio companies, and seeks to maximize returns for itself and its investors, also called the limited partners.

The fundraising period: The private equity fund lifecycle has three major phases. The first is the fundraising period, during which firms pursue capital calls from investors. The firm onboards and closes investors on a rolling basis, including for a time after the initial closing date. The traditional subscription process typically includes weeks or months of communications between the GP, LPs, fund administrator, and fund counsel as LPs fill out dozens of PDF forms.

The investment period: Overlapping with the fundraising period is the investment period, during which the GP identifies target companies, performs due diligence, and finalizes deals. While firms are slowly investing in legal tech to improve the workflows within the investment period, GPs still complete many legal tasks, like completing non-disclosure agreements, manually.

The harvest period: The third phase is the harvest period, during which the GP focuses on growing and selling its portfolio companies. This typically happens over a five- to 10-year period, during which the GP works with its portfolio companies to enhance efficiency and drive profits. Once sold, the GP distributes the LPs’ capital and preferred returns.

Throughout the investment and harvest periods, GPs are responsible for complying with their Limited Partnership Agreements and side letters. Traditionally, firms have relied heavily on outside counsel and spreadsheets to identify and comply with their contractual obligations, which come with a risk of human error and noncompliance.

Fund management software

In recent years, legal tech companies like Ontra have developed specialized software solutions to help firms manage their fund lifecycles and portfolios. Ontra has built a Legal Operating System that enables fund managers to better manage cumbersome legal tasks throughout the fund lifecycle, from NDA negotiations to contract compliance.

Contract Automation uses human-in-the-loop, AI-powered software to drastically cut down turnaround times on routine agreements like NDAs.

Insight is a fund obligation management solution that gives GPs a single source of truth for their fund documentation. By digitizing and gathering structured data from contracts, like LPAs and side letters, GPs can leave behind spreadsheets and track their obligations effectively in Insight. GPs also gain the ability to run detailed reports on their contract provisions to identify precedent and strengthen future negotiations.

Ontra Atlas modernizes legal entity management for private markets firms. It reduces the manual, time-consuming tasks associated with maintaining entity information while centralizing compliance efforts, decreasing costs, and improving collaboration.

Don’t miss Ontra’s expert insights

Thank you! We can’t wait to connect.

Discover Insight's fast AI-enabled contract digitization

Additional Reading

Explore our content