What it is
A private equity fund is a private fund that gathers money from a limited group of investors and uses it to buy ownership stakes in private companies, or sometimes to take public companies private. A professional team, often called the general partner or fund manager, makes the decisions. The investors are commonly called limited partners.
These funds usually take an active role in the companies they own. That can mean working with management, changing how a business is run, or supporting growth. Strategies vary widely, and related areas such as venture capital, private credit, real estate and infrastructure funds are often grouped in the same alternative asset family.
Private equity funds are generally offered under exemptions from SEC registration, so access is often limited. Many are open only to accredited investors under SEC Rule 501(a). Private fund investments are speculative and illiquid and can lose all of their value.
How it’s traditionally been approached
Traditionally, private equity funds have been structured as limited partnerships with a set life, during which investor money is committed, called upon in stages, and later returned as the fund's holdings are sold. Investors have often needed to be comfortable with holding their commitment for many years.
Offerings are made under exemptions such as Rule 506(b), which does not allow general solicitation, or Rule 506(c), which allows general solicitation but requires that all purchasers be accredited and that the issuer take reasonable steps to verify that status. Accredited status under Rule 501(a) includes several categories, such as certain income or net worth tests, holders of Series 7, 65 or 82 licenses, knowledgeable employees of the fund, spousal equivalents, entities and family offices with over $5 million in investments or assets, and registered investment advisers or exempt reporting advisers, following the August 2020 amendments.
Investors have also tended to review fee arrangements, reporting practices and tax paperwork. Investors in these partnerships commonly receive a Schedule K-1 rather than a Form 1099. Some company investments may involve Section 1202, known as QSBS, but tax treatment depends on individual circumstances, so people typically rely on their own licensed tax professionals.
How the right fund manager may help
The right independent fund manager may help you understand how a particular approach works, what kinds of companies it focuses on, and how the fund is organized. A good conversation is usually about clarity, not about pressure to act. The Hastings Fund is a directory only and does not recommend, endorse or rank any manager or investment.
A first conversation is generally an exchange of information. You might discuss your goals, your time horizon, how comfortable you are with money being tied up for long periods, and whether you meet accredited-investor criteria. Any offering is made only by the issuer through its own offering documents.
Useful questions to ask include: How does the strategy work? What are the risks, including the risk of losing everything? How long is money typically committed? How are fees and expenses described? What reports and tax forms should I expect? Past performance does not guarantee future results, and your own licensed investment, legal and tax advisers should review anything you consider.
The bigger picture
Money decisions are rarely just about numbers. Committing capital for many years can affect your sense of security, your flexibility in an emergency, and how well you sleep. It helps to think about your whole life, including your health, family, and the cash you want easily available.
Taking time to learn, ask questions, and talk with trusted advisers can bring more peace of mind than rushing. No approach is right or wrong for everyone, and many people find that a calm, well-informed pace supports better decisions. If wellbeing is part of your planning, Providers.plus may be one place to explore supportive resources.
Keep in mind
- Private fund investments are speculative and illiquid and can lose all of their value.
- Past performance does not guarantee future results.
- This page is educational only. It is not an offer to sell or a solicitation of an offer to buy any security, and it is not investment, legal or tax advice.
- Consult your own licensed advisers. The Hastings Fund is not a broker-dealer, funding portal or investment adviser.
Not sure where to start? Answer a few gentle questions and choose who you’d like to hear from.
Create an investor account →Frequently asked questions
What are private equity funds explained simply?
Private equity funds are pooled private funds that invest in companies not traded on public stock exchanges. A fund manager makes the decisions, and investors commit money for an extended period. They are speculative and illiquid and can lose all of their value.
Who can invest in a private equity fund?
Most private equity funds are limited to accredited investors as defined in SEC Rule 501(a). Categories include certain income or net worth tests, Series 7, 65 or 82 holders, knowledgeable employees of the fund, spousal equivalents, and entities or family offices with over $5 million in investments or assets. Registered investment advisers and exempt reporting advisers also qualify.
What is the difference between Rule 506(b) and Rule 506(c)?
Rule 506(b) offerings cannot use general solicitation. Rule 506(c) offerings can, but every purchaser must be accredited and the issuer must take reasonable steps to verify that status. Each offering's documents explain which applies.
Are private equity funds liquid?
No, they are generally illiquid. Investors often cannot withdraw money on demand, and commitments may last many years. You should consider whether you could be comfortable without access to that money.
What is a K-1 in private equity?
A Schedule K-1 is a tax form that partnerships commonly provide to their partners to report each person's share of items. Many private equity funds issue K-1s. Tax treatment depends on individual circumstances, so speak with your own tax professional.
How can a fund manager help me understand private equity?
The right independent fund manager may help explain their strategy, risks, fees and reporting in plain language. This is a possibility, not a promise of any outcome. The Hastings Fund is a directory and does not recommend or rank managers, so consult your own licensed advisers.
Educational resource. The Hastings Fund shares general information and connects people with independent fund managers. It is not professional advice. Talk with a qualified professional about your own situation.