Fund Of Funds: How It Works, Whether It’s Right For You, And How To Create Your Own Fund Of Funds
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    I remember the first time I came across the term “fund of funds.” I had no idea what it meant, and the idea of a fund full of other little funds sounded highly amusing and comical to me. I mean, imagine a school of schools, a bird of birds, or a cake of cakes.

    Okay, I could totally go for that last one. I will take as many cakes of cakes of cakes as I can get.

    All joking aside, if you’re raising capital for real estate syndications, you’ve likely heard of the term fund of funds, but perhaps only in passing. Maybe you’ve heard of others putting together their own funds of funds to raise capital, but you’re not quite sure what that means, how it works, and whether it’s right for you and your capital raising endeavors.

    In this article, we’ll walk through exactly what a fund of funds is, why an investor might be attracted to a fund of funds, compare a fund of funds model to a co-GP model, and discuss whether and how you might create a fund of funds.

    What Is A Fund Of Funds?

    Let’s start with the basics. A fund of funds is a fund that invests in other funds. Okay, I know that pretty much every other word in that sentence was “fund,” but trust me, it makes sense when you really take time to dissect it.

    A fund of funds (that’s the term we’re defining) is a fund (a pool of money gathered through investors) that invests in other funds (which are bundles of investment assets).

    A fund of funds can also be referred to as a multi-manager investment, as there are multiple managers involved, not only of your fund but of the other funds you’re investing in.

    As a fund of funds, you are essentially a large LP (limited partner) investor, which in most cases means that you will need to rely on your fund fees as compensation, rather than a portion of the GP (general partner) equity.

    A fund of funds can be used to invest in multiple funds, including real estate private equity, mutual funds, hedge funds, and more, and it gives you and your investors an opportunity to diversify into multiple asset classes within a single investment.

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    Why Might An Investor Invest In A Fund Of Funds?

    With that basic definition in mind, you might be thinking – why would an investor be interested in a fund as an investment vehicle, rather than investing directly into a single asset real estate syndication? Excellent question, grasshopper.

    Easy Diversification & Greater Balance

    Let’s say you have an investor who has $50,000 to invest. They’re evaluating a real estate syndication opportunity to invest in a 100-unit multifamily asset. But because the minimum investment in this deal is $50,000, they would be investing all their available capital into this single asset, and they’re worried about the potential risk they could incur. 

    Your investor is also considering investing that $50k into your investment fund instead. Rather than staking all their capital on a single asset in a single market and a single operator, your fund would allow them to mitigate risk by diversifying their investment across multiple assets, all while having you personally vet each deal on their behalf. This gives investors smart asset allocation without having to do all the legwork.

    In addition, by investing in your private equity fund, they can easily diversify across multiple assets and asset classes without having to review multiple PPMs and send multiple wire transfers. With one single transaction, their money is diversified across multiple assets, which is something they love.

    Access To Exclusive Investments

    While many real estate syndications have a $25k or $50k minimum investment, there are some investments that have a minimum investment of $500k or $1M+. That means that, if your investor only has $50k to invest, they might be shut out completely from those investments with higher minimums.

    However, by investing via your fund, they could potentially gain access to those investments with higher minimums, as they would be pooling their capital together with that of other investors in the fund and together could meet the minimum investment requirement.

    Additional Management Expertise & Customer Service

    On top of easy diversification, greater balance, and access to exclusive investments, a fund of funds can also offer investors an additional layer of management expertise and customer service.

    Rather than trying to interact directly with the operator of a real estate asset, mutual fund, or hedge fund, your fund investors can rely on you as the fund manager to advocate for them and be the liaison between them and each of the individual operators, thus providing an additional layer of protection.

    Plus, with you as their point of contact, they get a higher level of customer service and communication, ensuring that they don’t have to chase multiple operators to get the info or documents they need.

    Why Create A Fund Of Funds

    If you’ve raised capital before, you likely know that it can sometimes feel like a fire drill, with a sudden sprint to collect all the necessary capital or hit your minimum raise target within a few short weeks, which can be stressful.

    In addition, syndication opportunities might not always open up on a consistent cadence. For example, you might have an opportunity to raise capital for a syndication today, but because your partners aren’t able to find another deal that makes sense, you may not have another syndication opportunity for several months to a year.

    During this time, your investors may get antsy, especially if they have ready capital they want to invest. If you don’t continue to provide them with more opportunities to invest, they might take their money elsewhere, and you could risk losing some of your investors.

    The beauty of a fund is that you can create one anytime, even if you don’t currently have a deal under contract or haven’t yet chosen the specific deals, mutual funds, or hedge funds that your fund will invest in. 

    This gives you more control over the timing of offering new opportunities to your investors and can help keep the momentum going in times when you may not have other deals to offer your investors.


    • Flexibility in timing – You can decide exactly when to set up and launch your fund, which gives you more control and allows you to fill in gaps when you may not have a new investment for several months at a time.

    • Flexibility in structure and parameters – You can decide exactly how to structure your fund, the acquisition and management fees to charge, the investor returns to offer, and the types of deals your fund will invest in, giving you maximum control.

    • Freedom to choose investments – Because you’re coming in as a fund, you can choose to invest in any open opportunities that meet your criteria. You don’t have to negotiate a partnership or enter into a JV (joint venture) agreement.


    • Upfront and ongoing costs – The expenses to set up and run a fund of funds can add up! This is why it’s important to do your due diligence and research to ensure you have an accurate understanding of the expenses you will incur before you launch your fund. As long as you’re accounting for them and charging enough in fees to cover the costs, you should be good.

    • Ongoing admin responsibilities – As the fund manager, you’ll have ongoing responsibilities throughout the life of the fund, including investor communications, financial reporting, compliance tasks, taxes, and more. Be sure you have an accurate understanding of what’s expected and whether you’re willing to take on those tasks.

    • LP level investment – As a fund of funds, your investment is essentially an LP (limited partner) investment, which means you won’t receive any GP (general partner) equity. In addition, you will also receive investment updates at the same time as other LPs, with very little, if any, behind-the-scenes GP-level involvement.

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    How To Create A Fund Of Funds

    If you’re raising capital for real estate, a fund could allow you to give your investors built-in diversification and additional risk mitigation, while giving you more control over timing and fund structure.

    Step #1 – Fund Design

    Before you call an attorney to set up your LLC and PPM, start by thinking through the design and structure of your fund. Because you have a lot of freedom and flexibility when it comes to a fund, you can decide when to launch, what fees to collect, the returns you’re projecting, whether you’ll accept non-accredited investors, investment classes and minimums, and more.

    Start by thinking through the goal of your fund and what you’d like to achieve. Are you putting this fund together to give your non-accredited investors a chance to invest? To offer lower minimums? To give your investors access to a deal that they otherwise couldn’t invest in alone?

    Clarify your goals for launching a fund, then work backwards from your goals to determine the design and structure of your fund.

    Step #2 – Fund Structure

    In addition to fund design, you’ll also want to think about the logistics of your fund structure and the underlying funds, so you can determine the fees you’ll want to charge, the investor returns you’re targeting, classes of investments, hold time, and reserve budget.

    This step will involve doing some research on the expenses you can expect, including legal and accounting costs, SEC filing fees, taxes, and more. This will give you a baseline with which to determine the fees you need to charge to cover those expenses and make it worth your while.

    On top of that, you’ll want to set some parameters for the types of funds or investments that your fund will invest in, whether you’ll invest in a single deal or multiple funds, and use those to determine your investor return profile.

    Whenever possible, structure your investment fund to incentivize your investors to invest in your fund rather than directly in individual funds or investments. This might mean increasing the overall return or providing other benefits that might be meaningful to your investors.

    Step #3 – Legal Framework

    Your attorney is going to be one of your best friends through the process of creating your fund. A good securities attorney is well versed in what’s possible when it comes to fund structure, fees to charge, and other fund considerations, so they’ll be able to advise you on whether the elements of your fund design are possible. They might even help you brainstorm solutions to achieve your fund goals.

    Your attorney will need to help you create an LLC and operating agreement for your fund, as well as the PPM and subscription agreement for your investors. As part of these documents, you’ll need to disclose the acquired fund fees, expenses, and more. Your attorney can guide you through all the necessary components to ensure you stay within the letter of the law.

    Step #4 – Admin Tasks

    Before you can launch the fund to your investors, there are some additional admin tasks you’ll need to check off, to ensure that everything is set up for your investors. This includes…

    • Setting up a bank account for your fund (this is where your investors will wire their money)

    • Choosing and setting up an investor portal

    • Finding a bookkeeper and CPA

    • Finalizing investor education and marketing materials for your fund

    • Choosing a fund administrator (optional)

    Note: If you’re planning on putting multiple investments into your fund, particularly multiple types of investments (i.e., one real estate investments, one mutual fund, and one hedge fund), and potentially at different times, you may want to work with a seasoned fund administrator who can help you balance the fund and allocate investor dollars appropriately.

    Bonus – Identify The (First) Investment For Your Fund

    A blind pool fund is one that doesn’t yet have any assets identified. Investors who invest in blind pool funds are doing so because they have built a deep trust with the fund manager and trust them to find the right assets.

    If your investors have that deep level of trust with you, fantastic. But if they don’t, one of the best things you can do to build momentum for your fund is to identify the first investment (or only investment, if you only plan to invest fund dollars into a single investment).

    Seeing a tangible investment that the fund will be investing in allows investors to gain more clarity on what they’re actually investing in, which makes it more likely that they’ll move forward with the investment.

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    Things To Consider When Creating A Fund Of Funds

    When you’re thinking about launching your own fund, there are a lot of things to consider, to ensure that there are minimal surprises along the way and that your fund is set up for success right from the get-go.

    Upfront & Ongoing Expenses

    One of the biggest considerations are the costs of launching and running a fund. This is one that can catch a lot of first-time fund managers off guard, as they continue to rack up more and more expenses after the fund has already launched, meaning they aren’t able to backtrack and change their fees.

    If you’re not careful, unexpected costs could eat into your compensation as a fund manager and could even swallow your profits altogether.

    Here are some of the most common expenses to take into account:

    • Bank fees
    • Legal fees 1
    • Wiring fees 2
    • Bookkeeping costs
    • CPA 3
    • Fund administrator fees
    • Investor portal fees
    • Blue Sky filing fees 4
    • Taxes
    • LLC entity fees 5

    1 Legal Fees: In some cases, you might be able to negotiate with the sponsors for the deals your fund will invest in, to have them cover some or all of the legal fees. They won’t always be open to this, but it’s worth a shot to ask.

    2 Wiring Fees: This is for when you are wiring the underlying funds that you’ve collected within your fund to the individual operators, sponsors, mutual funds, or hedge fund managers for the deals your fund is investing in.

    3 CPA: Each investment will give you a master K-1, and you’ll need to work with a CPA to divide those into individual K-1s for your investors. This can be costly, so be sure to get quotes from CPAs before launching your fund.

    4 Blue Sky Filing Fees: You’ll need to complete Blue Sky Filings for each state in which you have at least 1 investor. These fees can range from state to state, so it’s important to build in a buffer for yourself. Also, keep in mind that you need to file promptly, else you may incur late fees.

    5 LLC Entity Fees: These could include registered agent fees, filing fees, admin fees, and state fees, as well as the cost for a business mailbox / address for your LLC.

    Ongoing Administrative Responsibilities

    As the fund manager, you will be responsible for ongoing reporting, communications, and other duties to ensure that your fund remains within compliance and that you are keeping your investors informed and happy.

    Here are some of the most common administrative responsibilities to take into account:

    • Ongoing investor communications 1
    • Quarterly financial reporting
    • Investor distributions 2
    • Investor address and banking info changes
    • Investor K-1s 3
    • Annual minutes for your fund LLC

    1 Ongoing Investor Communications: You’ll need to gather ongoing updates from each of the investments in your fund and turn them around for your investors. This can be in the form of monthly updates or quarterly communications.

    2 Investor Distributions: In a fund model, each deal or investment will send a lump sum distribution to the fund, rather than to each of your investors. You will then need to calculate your fees, then distribute the appropriate amounts to each investor.

    3 Investor K-1s: Just as with the lump sum distributions, you’ll receive a single K-1 for your fund. You’ll then need to work with your CPA to parse the master K-1 into individual K-1s for each investor.

    The Co-GP Model Vs. Fund Of Funds

    When starting out raising capital in real estate, there are two main avenues: being a co-GP or creating your own fund. We’ve now talked at length about how a fund works, so now let’s take a moment to talk about how the co-GP model compares, and which one might be better for you.

    Unlike a fund, a co-GP is a part of the general partnership team. As such, a co-GP typically gets a piece of the GP equity in the deal, which can significantly increase your potential returns on the backend.

    A co-GP typically also has greater access to the behind-the-scenes goings-on that the GP team is privy to and overseeing, including asset management, operations, tax and insurance changes, and more.

    The challenge with the co-GP model, however, is that it requires strong partnerships, and when you’re just starting out in raising capital, it can take some time to build those partnerships and earn a seat at the table.

    So, the fund model can be a good stepping stone to help you build your capital raising track record, which could give you more co-CP opportunities, which could eventually lead to you sponsoring your own deals.

    Does A Fund Make Sense For You?

    Now that we’ve discussed the ins and outs of the fund of funds model, the question is, is it right for you, your investors, and your business?

    Raise Capacity

    The first thing to consider here is your raise capacity. How much investor capital are you capable of raising right now, and how confident are you in that number? Would that be from accredited investors, non-accredited investors, or both?

    Because of the many tasks and costs of setting up a fund, you’ll want to be sure that the amount you can raise is enough to make a fund worth it. For example, if you’re only able to raise $250k, you likely won’t make enough in fees to cover the costs of putting the fund together, and you should first focus on finding more investors.

    If, on the other hand, you can raise $1.5M to $2M or more, you might be able to create a more comfortable cushion for yourself, giving you a return on your time and effort that could make a fund well worth it.


    If you’re unsure of your raise capacity, or your raise capacity is lower than you’d like, you might also consider partnering with others who are in the same position. By working together to create a single shared fund of funds, you can split the expenses and the ongoing administrative burden.

    And, by increasing the overall raise capacity through bringing in multiple capital raisers, you’ll have access to higher fees and shared resources (like CPAs, bookkeepers, and investor portals), which could make fund management more doable and also strengthen your bottom line.


    Launching a successful fund requires deep trust from your investors. With a fund, they’re putting their trust in you, rather than the direct assets they’re investing in. You are essentially as a general contractor and overseeing their asset allocation strategy.

    Thus, to ensure that your fund launch will be successful, make sure that you are actively working to build trust with investors, well before you launch your fund. Part of doing so will require that you have a clear idea of your target investor avatar and their most pressing pain points.

    That way, once your fund opens, your investors will be ready to jump in and invest with you.

    Next Steps

    If you’re considering launching a fund of funds, start by educating yourself through reading articles like this one, talking with attorneys and CPAs about your plans and goals, and connecting with others who have successfully launched real estate funds of funds.

    If you haven’t already, be sure you’re keeping your audience warm and engaged through providing consistent and ongoing value to help them reach their investing goals.

    If you’d like support with marketing, branding, and/or launching your own fund of funds, we’re here to help!

    Through our Real Estate Accelerator program, we’ll give you all the resources, tools, and vendors we’ve used to help our coaching members successfully launch their own funds, so you don’t have to reinvent the wheel.

    Learn more and apply today.

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    Annie Dickerson

    Annie Dickerson

    Annie Dickerson is an award-winning real estate investing expert with 15+ years of real estate investing experience. Annie is the Founder & Chief Brand Officer of Goodegg Investments – an award-winning boutique real estate investment firm.


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