Are You a LatAm-Based Investor or Entrepreneur and Would Like to Explore Investing in a Fund, Forming a Fund, or Raising Capital From a Fund?

A fund consists of a pool of money contributed by multiple individuals with a view to accessing investment opportunities they would otherwise not have access to.

Investing in a fund offers many advantages, including:

• Diversification of Investments: The pooling of capital enables a wide range of investments by increasing the total capital base.
• Risk Mitigation: Diversification provides the benefit of mitigating the risk associated with the performance of a single investment.
• Access to Selected Opportunities: Participation in a fund provides access to investment opportunities typically reserved for large capital bases and sophisticated investors.
• Alignment of Investors: An investor base with similar interests and goals can leverage collective networks, knowledge, and experience.
• Management of Fund: Individuals can benefit from the expertise and insights of fund managers who can identify and facilitate favorable investments and deal terms.

Forming an investment fund offers advantages for those looking to access a larger, committed capital base, or take advantage of tax efficient structures, which include:

• Capital Aggregation: Pooled capital allows access to investment opportunities typically earmarked for larger investors and may allow for the negotiation of better investment terms. This can lead to higher returns and allow for diversification of investments across markets, asset classes, industries, and geographies.
• Committed Capital Base: Establishing a committed capital base allows for a consistent and reliable pool of funds, eliminating the need to seek financing on a per-deal basis, which allows strategic and timely investment decisions without the uncertainty of raising capital for each investment opportunity.
• Tax Efficiency: Investment funds may offer efficient tax structures based on the jurisdiction of formation and nature of the fund.

Funds can generally be categorized as open-ended or closed-ended:

• Open-End Investment Fund: An open-end investment fund refers to a type of fund, typically formed by hedge funds, and certain digital asset, debt, and real estate funds, where investors can continuously buy in and out of the fund. The fund does not have a fixed amount of equity, capital, or investors. Open-end funds allow investors to maintain some liquidity while still leveraging a diversified portfolio and fund managers with investment experience and knowledge.
• Closed-End Investment Fund: A closed-end investment fund refers to a type of fund, typically formed by venture capitalists, real estate funds, private equity funds, debt funds, and certain digital asset funds, which is formed for a fixed duration, and has a fixed amount of capital and investor base. Investors in closed-end funds are typically focused on the long-term appreciation of the fund’s portfolio assets.

The general process for forming an investment fund includes:

• Developing an Investment Strategy: The fund should have an identified market or asset class, a risk management policy, and a strategy for providing returns to investors. Other considerations include investing in a particular region, a factor often driven by the location of the fund’s investors.
• Forming the Legal Entity: The fund’s investment strategy, tax considerations, and governance strategy drive the choice of entity and jurisdiction for the fund. To learn about the different types of corporate entities that are available in the U.S., please visit this link.
• Raising Capital: Most private funds in the U.S. raise capital through exempt offerings (sale of securities excluded from the registration requirements of the Securities Act of 1933). Many of these exempt offerings allow non-U.S. entities and individuals to invest in U.S. funds. If you are interested in raising capital in the U.S., please visit this link for simple suggestions that can help you secure funding.
• Launching, Managing, and Operating the Fund: After developing an investment strategy, forming the entity, raising capital, and identifying/pursuing investment opportunities fund administrators are responsible for managing the fund and investments in alignment with the selected strategy. For insight on performing due diligence on U.S. companies, please visit this link.

There are multiple funds currently investing across various markets in Latin America with different investment strategies. In essence, they look to provide local businesses and entrepreneurs with the capital they need to grow.

If you are interested in forming a fund, investing in one, or presenting your business as an investment opportunity for a fund, and would like to learn how to optimize your fund structure, investment, or capital raising strategy based on your county of residence, relevant investment guidelines and tax considerations, please let us know! Our multidisciplinary team of lawyers can help you develop a tailor-made investment strategy taking into account the laws of all jurisdictions involved.