How To Start A Fund Without A License

Welcome back to the channel. Today we're going to talk about how to start a fund without a license. Now, in the last year out of our group, we launched 120 funds last year. A lot of these private equity hedge funds, venture capital, real estate funds, debt funds. I mean, any fund across the board we have launched and seen in our group and actually have worked with a lot of these founders and we've seen a lot of cool stuff without licenses, with and without. So today I want to give you the whole guide. When do you need a license? When do you not need a license, etc.? Now, full caveat: I'm not a lawyer. This is not legal advice. I'm just sharing what I've learned and my opinion on things. I'm going to tell you multiple times this video to go check with legal counsel. Go check in your state or your country. But I'm going to share a few things that we've used for our funds. I've founded three investment funds, and we've seen with a bunch of other our founders inside of Fund Launch literally 120 funds launched out of our group last year with Fund Launch. Now, this goes across the board for any fund. I'm talking private equity venture real estate debt. Is this consideration? Are you under or over 150? Million. That's AUM, assets under management. If you're under $150 million, you fall under this state level. I'm talking about the United States here. So state level. Over $150 million, you fall under the federal level. You're not in both. You're in one or the other. Funds that are under $150 million would file as an investment advisor, an IA. If you're over $150 million, you would file as a registered investment advisor. Now to do either one of these, you would need a Series 65, which is a license. Okay, Series 65 for either one of these. And what you'd do is you'd come down and let's say this is your fund. You got your general partner, you've got your limited partnership. And if you don't know what these mean, go watch some of our other videos. We talk all about this. You've got your limited partners or your investors that put money in. You would set up also a what we call a management company. This company would be your RIA or your investment advisor depending on how much AUM you have. You'd have a Series 65 license and you would set up an registered investment advisor. And this, this management company, this entity box here would become a registered investment advisor and would give investment advice to the limited partnership. You would give advice and you would get paid for that advice 2% a year, let's just say on average. So because you're getting paid for investment advice, you have to be licensed again with a Series 65. And by the way, hopefully this is helpful. I'm just diving right in. No story, no nothing. We're just diving into the content. Hopefully that's cool with you guys. If you guys like this video, by the way, like and subscribe down below. That helps us out a ton on this channel. Now additionally, this called a wholesale investment advisor, registered investment advisor. You know how like everyone has like their brother-in-law or friend that works at like Charles Schwab or Merrill Lynch and they always want to be your investment advisor and be your whatever? They also hold a 65, but they're not wholesale. They are retail. That's why they're trying to get you to come, you know, come recruit you to be in their investment advisor team. And they're going to give you investment advice. They're paid for their advice. And a lot of times they charge 2% a year. This is not the case. You are here You only have one client. You advise the limited partnership. The fund is your client, and that's who you give investment advice to. Additionally, you don't serve, you don't give investment advice to individual investors. Those are not your clients. So a big investor will come to you and say, hey, we need to pull money out for tax reasons. They could be, they could have given you $100 million. Hey, we want to get out of here, blah, blah, blah. Can you sell the properties early? And you say, sorry, my client is not individual. I don't serve individual investors. My fiduciary responsibility is to the fund, is to what's best for the full limited partnership. And sorry, the assets just aren't ready to sell yet. And tough, you know, in our LP and PPM, you can pull out early. You take a 50% penalty if you do so. For example, in what somebody's up— that's actually true. A lot of LPs, PPMs literally say if you pull your money out early, it's a 50% penalty. Okay. Which is kind of crazy. All right. I digress. Okay. So this is what we're talking about here. Now, a few things. So this would be the license you need, a Series 65. However, there's a couple of different things that you can do to not have a license in your fund down here. A lot of states. So again, this will depend. Go ask legal counsel. And by the way, I would recommend getting rich written legal advice for this. So if you're in— I'm in Utah and we're launching a fund and I run a crypto fund currently. We actually wrote to our lawyer and we said, hey, we're in Utah. Can we file as an exempt reporting advisor? Okay. This works if you're under $150 million. A lot of states do this actually. Almost, I would say a majority of states let you do this. You can become an exempt reporting advisor where you're exempt from being an investment advisor or a registered investment advisor. You can actually still give investment advice and get paid for that advice 2% a year, but you do not need to have a Series 65. Pretty crazy because you're not doing retail. You only have one client and it's your fund and they kind of realize that. You go, hey, you don't need a 65 if you're under $150 million in our state doing a fund, which is kind of cool. So you can file as an exempt reporting advisor. So make sure I would email your lawyer and say, hey, can we do this? Get it written and make sure it's— so if you get dinged on it, it's their malpractice insurance gets dinged, okay? But you can actually file as an exempt reporting advisor, which is pretty cool. Okay. This is at the state level. Now, once you get over $150 million, there are a few funds that it's kind of a gray area. For example, like real estate funds, you can file under the 3 exemption. And sometimes you don't need a, you know, this. But oftentimes, most of the time, we just— I tell people it's a good idea once you get over $150 million to get your Series 65, set up a registered investment advisor, and just do it the right way. But I've seen— I've seen some funds that are $500, $600 million AUM and they don't have 65s. They are still in exempt reporting advisor, again depending on the type of fund they're running. Okay, is this making sense so far? Not that, not that hard, right? So now going down below, a lot of people ask me about hedge funds. What if I'm trading? Do I need to have a Series 7, a Series 3, a Series 33, all these different licenses? And this is at least what we've seen across the board. So again, I'm going to redraw this out. You got your general partner, your limited partnership, your fund. And let's say you're gonna run a hedge fund, you want to do all this kind of cool stuff. Now you can do that. A lot of big hedge funds eventually will open up their own broker-dealer. And to open a broker-dealer, you have to have a Series 7 license. You hang that at your broker- dealer, and that's a whole entity in itself to issue trades. A lot of small hedge funds or medium-sized or even large hedge funds, they don't open up their own broker-dealer because there's a lot of work. Actually, it's a lot harder, what I've heard, than setting up your own RA. You go and you work with a prime broker who already holds all these licenses. This is Credit Suisse or Goldman Sachs. I guess Credit Suisse went under or whatever, but Goldman Sachs, this could be a trading desk there. So you're here at the fund, you issue your trades through a prime broker. They allow you to pull leverage and do all the other crazy stuff you want to do. They then issue and do the trades and then the trades flow back to you as the fund. Again, the only license you would need potentially is a Series 65 because you're giving investment advice and getting paid 2% for that investment advice. Kind of cool. So you don't need to get all bugged out. Some people are like, I'm going to get every license in the book. I guess you can do it. And some funds like to buy a broker-dealer or own their own broker-dealer. And so they don't have to use prime brokers. But a lot of funds actually use prime brokers here to issue their trades. And the prime broker holds a majority of the licenses there for you. But again, this is not legal advice. Go check with legal counsel, make sure it's all done correctly in your state and your situation, etc. But this is what we've seen across the board. We've now worked with hundreds and hundreds of different funds that have launched. We have over 55,000 students across all of our programs and courses, which is pretty cool. So I get to see a ton of funds, including running my own fund, which is pretty cool. Hopefully that helps. Type a comment down below if this— if you have any questions on this, we can make more videos. Like and subscribe to this channel. And if you want to learn more about funds, we have other videos for you as well. Thank you so much. I'll see you in the next one. Peace.