At Avestor, we prioritize keeping you informed about your options, especially when it comes to selecting the right capital raising structure.
Among the most options to choose from, blind pooled funds are one of the oldest and still remain popular, especially within private equity, real estate, and hedge fund investments.
Blind pooled funds, although beneficial in certain situations, come with certain drawbacks that may not suit every investor's needs. That’s why weighing their pros and cons is crucial to determine if they align with your financial goals and risk tolerance.
So, let’s delve deeper into what blind pooled funds are, explore their pros and cons, and compare them with other fund structures like the Customizable Funds to see which would benefit you more.
What Is A Blind Pooled Fund?
A blind pooled fund is an investment vehicle where investors pool their money into a fund managed by a professional fund manager. The term "blind" refers to investors not knowing beforehand which specific assets or investments their money will be allocated to.
Instead, they have to rely on the fund manager’s experience to make investment decisions on their behalf. This type of fund is commonly used in private equity, real estate, and hedge fund investments.
Although blind pooled funds can be particularly appealing to investors who want truly passive opportunities, they also require a relinquishing of control, and their success and failure will depend largely on the expertise of the individual fund manager.
For fund managers, blind pooled funds are an efficient method of capital raising, especially for those with an established investor base. They are more expensive to start than a single syndication deal, and they require the fund manager to raise a much larger amount of capital in a set period of time, so they may not be the right choice for first-time capital raisers.
The Pros And Cons Of Blind Pooled Funds
Now that you understand the basics of blind pooled funds, let’s dive a bit deeper and understand their pros and cons.
Pros:
- One Legal Filing: Rather than creating a new PPM and completing new legal filings for each deal like in a syndication model, a blind pooled fund brings multiple deals under one umbrella.
- Investor Diversification: Investors may appreciate the instant diversification a blind pooled fund can afford them, compared to a syndication where they’d be putting a larger amount of money into a single deal.
- Professional Management: Investors benefit from seasoned fund managers who bring extensive experience and knowledge to the table.
Cons:
- Lack of Transparency: If your investor base is interested in having a say in the deals they participate in, they may prefer to invest in syndications or Customizable Funds instead of your blind pooled offering.
- Asset Class and Deal Structure Limitations: A traditional blind pooled fund will contain multiple investments in the same asset type and with the same deal structure. This can limit fund managers who want to invest in multiple types of opportunities or pivot based on market conditions.
- Limited Timeframes: Traditional blind pooled funds must have defined start and end dates, so they require you to raise a significant amount of capital in a short period of time.
How to Maximize the Benefits of a Blind Pooled Fund
If you’re drawn to the benefits of a blind pooled fund but worry about the negatives, you may find that the Customizable Fund is the perfect solution for your capital raising needs.
Now the question is, what benefits does a Customizable Fund offer that are absent in blind pooled funds?
Benefits:
- Increased Transparency: Investors know exactly where their money is being invested, providing greater peace of mind and the ability to make well-informed decisions.
- Enhanced Control: Investors can select specific assets or sectors to invest in, allowing them to tailor their portfolios according to their preferences and risk tolerance.
- Cost Efficiency: Customizable Funds are significantly less expensive to start than blind pooled funds, and are therefore an appealing option for first-time capital raisers and established players alike.
- Evergreen Timeframe: Customizable Funds don’t have time limitations attached to them, so you can continue to add deals over time and don’t need to relaunch a new fund every year or six months.
- Asset Class Flexibility: Customizable Funds can house multiple asset classes and multiple business models within one fund. This is more affordable for fund managers and increases the opportunity for investor diversification.
Learn How the Customizable Fund Can Work for You
Though blind pooled funds have long been a popular fund structure, with Customizable Funds, you can reap the benefits of a blind pool fund without the drawbacks. And if you’re ready to take the next step, we want to help you get started!
Schedule a free strategy call here to understand how Customizable Funds can change your investment game.
