Navigating the Path to Fund Launch: The Role of Launch Advisory Service Providers

Launching a private fund that is prepared to take institutional capital is a considerable undertaking encompassing various business areas, including investment strategy, operations, technology, compliance, finance, and administration. New fund managers are likely experienced stewards of outside capital and seasoned business advisors; however, establishing operations as an investment manager is often a new undertaking. Many decisions need to be made, including which vendors to work with, systems to implement, and policies to adopt. These decisions require detailed budgets and cash forecasting to ensure there is capital to launch and run the firm successfully. For the new fund manager, all this can be challenging to accomplish, especially when there are limited personnel and financial resources as well as a tight timeframe.

An experienced launch advisory service provider can be an invaluable resource to fund managers during the pre-launch process. Ideally, these teams comprise former private equity Chief Financial Officers (CFOs) and Controllers who can provide insightful perspectives throughout the pre-launch phase across various business functions. This may include filling the CFO position in an outsourced capacity until a permanent hire is made, as well as assisting the fund manager with that key hire. Such teams understand what is required to establish an institutional-grade operational infrastructure that will satisfy investor due diligence inquiries and result in a successful capital raise, as well as set the stage for growth of the investment manager in a way that is both cost-effective and scalable.

Charting the Course: Strategy and Operations

Establishing a fund launch timeline and monitoring expected cash flow is essential during the capital raise period. The decisions made during this phase may impact the outcome and overall cost management of the fund launch.  

An experienced launch advisory team can set up operations, ensuring processes are industry standard and are aligned with the firm’s objectives, particularly in four areas:  

1. Budgeting and Cash Forecasting
   
   Launch advisory teams collaborate closely with fund managers to develop detailed multi-year budgetary projections that align with the firm’s growth objectives and anticipated expenses. By leveraging industry benchmarks, launch advisory teams ensure realistic budget projections highlighting, for example, whether fund managers will need to inject their own capital to reach their objectives or if the management fee will cover the projected expenses. Additionally, a detailed budget provides a clear view into hiring, which is critical as private fund managers look to add talent when reaching different milestones.
    

2. Vendor Management
   
   Vendor selection is important. The right partners foster growth, and the wrong ones pose risks to resources and reputation. Launch advisory service providers offer valuable assistance during this process, leveraging their expertise and network to identify vendors aligned with the firm’s objectives. They conduct thorough vendor due diligence across various areas, including banking, finance, fund auditing, tax services, insurance, human resources, and IT providers, to understand each vendor's unique offering, how it compares to other firms, and overall pricing models. Additionally, launch advisory providers facilitate contract negotiations, ensuring favorable terms. This guidance allows firm leadership to focus on their core competencies while ensuring that critical vendors are onboarded in a timely fashion.
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3. Policies and Procedures
   
   Launch advisory providers can play a crucial role in establishing investment firm policies and procedures, including ensuring those policies and procedures comply with SEC, ILPA and other relevant requirements and/or standards (e.g. ESG regulations and frameworks). Leveraging their industry knowledge and best practices, these teams work closely with firm leadership to design tailored frameworks aligned with strategic objectives at both the fund and management company levels. Avoiding a “one-size-fits-all” or “checklist” approach to these critical policies and procedures pays dividends as resources are focused on the actual operation of the business and attendant risks and objectives. Optimizing workflows and integrating technology solutions will enhance efficiency and scalability and foster a culture of operational excellence.  
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4. Operational Due Diligence
   
   Having an experienced launch advisory team as a trusted resource during the Operational Due Diligence (ODD) process is advantageous. Leveraging their understanding of the firm's operational infrastructure, investment strategy, and industry standards, experienced launch advisory teams assist in compiling detailed documentation showcasing the best practices institutional investors expect. During meetings, launch advisory providers serve as trusted consultants, addressing inquiries, clarifying processes, and highlighting strengths that help build investor confidence, mitigate concerns, and foster relationships, thereby supporting capital raise efforts and long-term success.
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5. Responsible Investment Strategies
   
   The ability to articulate an investment firm’s sustainability strategy and how core ESG principles will be integrated into investments can be important during a capital raise, especially when seeking commitments from LPs focused on such issues. When it comes to navigating today’s ESG landscape, experience matters.  Launch advisory providers can add value during the fund’s launch by providing insight into what LPs expect to see during the ODD process (including preparing best-in-class policies and ESG monitoring and reporting procedures and helping describe this in the fund’s marketing materials).
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Optimizing Operations for Future Growth of Established Managers

Engaging a highly experienced launch advisory service provider such as Petra Funds Group can also prove invaluable for established fund managers looking to enhance their operational efficiency and gain fresh insight into their processes and systems.  These services bring to bear a wealth of external expertise and industry best practices, offering a comprehensive review of existing processes and systems from an outsider's perspective. By conducting thorough assessments and benchmarking against industry standards, launch advisory service providers can identify inefficiencies, areas for improvement, and opportunities for optimization. They provide actionable recommendations tailored to the firm's specific objectives and challenges, helping fund managers streamline workflows, enhance controls, and maximize output. Moreover, the impartial viewpoint of a launch advisory service provider can uncover blind spots and inefficiencies that may have been overlooked, enabling established fund managers to refine their operations, maintain competitiveness, and drive sustained growth.

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Importance of Launch Advisory Services

While a strong investment track record and well-defined investment program are paramount to a successful fund launch, many other qualitative factors must be carefully considered. An apparent lack of preparation or consideration of operational issues can undermine even the best track record. With the right launch advisory partner and planning, an organized process can be put in place to guide the fund manager through pre-launch, laying the groundwork for a successful capital raise. While there is no one-size-fits-all solution, there are best practices to follow to establish institutional-grade fund operations — an essential step to a successful capital raise.  

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How Petra Can Help

Petra Funds Group (“Petra”) is an experienced launch advisory service provider led by former CFOs, COOs and Controllers of private equity firms of many sizes and strategies. Leveraging direct experience and an expansive network of vendor and advisor relationships, Petra has successfully executed numerous pre-launch advisory engagements through its Emerging Manager offering, allowing first-time fund managers to focus their full attention on fundraising and investment programs. 

Please reach out to Lorena Richards to learn more about Petra’s Emerging Manager offering and subsequent launch advisory services.

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