Can I invest in my own fund as a Manager?
Are you interested in investing in your own fund? Your fund is an excellent vehicle for you to invest and provides investors confidence when you invest side by side with them.
But, you have to be careful. Avestor recommends that you DO NOT use your SD-IRA or 401k retirement accounts to invest in your fund either as an LP or as a manager. IRS rules prevent you from receiving compensation in your own investments.
Note: Avestor provides sponsors with general guidance. Please speak with your securities attorney for your specific situations.
Now, with non-retirement money, there are 2 different ways to invest in your fund:
- Invest as the Manager
- Invest as a Member
Which option you select impacts how the capital will be utilized, profit sharing with co-managers and has tax implications. So lets discuss each of these.
Capital Utilization
When you invest through the Manager account, the Avestor system will enable you to pre-invest in deals. All slices are initially allocated to your Manager account and then you are able to allocate those slices to investors. In this model, you will receive your pro-rata share of earnings, profits/losses as the Manager for any slices that have not been allocated to investors.
When you invest as a member (by creating a normal investor account like all other investors), then you will need to allocate slices to your investor account just like any other passive investor.
Profit Sharing & Tax Implications
For manager accounts, the earnings, profits/losses will flow through to the management entity. The co-managers will then receive their share based on the equity split as defined in the management entity operating agreement. So, if you are 50/50 between two co-managers, the earnings are split equally.
When you invest as a member (by creating a member account), the Avestor system will treat your earnings the same as as any other passive investor.
Recommendations
- If you are looking to invest your personal capital into deals and hold for the length of the deal, we recommend investing by creating an investor account. Create the account like any other investor, select the investments you want to participate in and allocate yourself into the deal.
- If you are looking to pre-invest in deals as a Manager, then you must invest via the Manager account. First, each co-manager must deposit capital into the management entity bank account. The management entity then makes a capital deposit into the fund bank account. In Avestor, you will log this as a capital deposit by the Manager.
- When investing as a Manager, Avestor recommends that co-managers put in capital into the fund equivalent to their equity split in the management entity.
