In this instructional video, the speaker explains the fundamental differences between investment funds (structured as general partnership/limited partnership) and holding companies (structured as LLCs or corporations). He outlines the typical fund lifecycle—capital raised from limited partners, acquisition, value‑add, and disposition phases—and why funds are suited to buy‑and‑sell strategies because limited partners need liquidity and a defined exit timeline. The speaker then contrasts this with holding companies, which can own assets indefinitely, issue shares or membership interests, and generate perpetual cash flow, but face challenges such as illiquid private shares, higher reporting costs, and lack of the carried‑interest tax advantage that funds enjoy. He discusses practical considerations when moving an asset from a fund to a holding company, including the need for fair‑market‑value audits and the holding company’s ability to finance the purchase. A real‑world illustration is provided through Warren Buffett’s Berkshire Hathaway, showing how a public holding company can acquire and manage a portfolio of businesses under stricter regulatory reporting but with long‑term ownership goals. The video concludes by summarizing that funds are optimal for finite, buy‑and‑sell investments, while holding companies are better for perpetual ownership, each with distinct tax, liquidity, and governance implications.
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What's up guys? In this episode, we're going to talk about funds versus holding companies, the similarities, differences, why you'd want to do one or the other and how they come into play. So let's get into it. This first part, you know, just a second overview here. The common structure of a fund is you've got your general partnership over here that manages the limited partnership and money comes into the limited partnership. Investors come in, you go buy assets or real estate, or You trade, and, you know, that's, that's a common fund. Let me make something clear. The— a fund is great for buying and selling something, okay? Like, that's, uh, buy and sell. The reason being is because these investors over here, they are on a timeline. Uh, they don't just want to give you money forever And you know, get their money back. Just let you manage their money till they die or till the end of the lifetime. Like they want to make sure that they can take their money out and invest it elsewhere if you're not performing well or you know landscape changes, whatever. You know, so a fund works really well at the process of buying and selling. You know, the common you know cycle of a fund looks like this. You know, you kind of start in year zero. Hedge funds, you know, obviously go out in perpetuity or crypto. Venture, private equity, real estate, closed-ended, and going to be like, what, 10 years, we'll call it on average. And there's kind of 3 phases. There's kind of the, you know, acquisitions phase, then the value-add, and then the dispositions phase. And that's just pretty common. Obviously venture, it's more, you know, there's not as much on the value-add side, but that's like the common Lifecycle of a fund. Now I get people coming to me and asking all the time saying, Lincoln, this asset right here, let's say it was real estate or a company. What if I don't want to sell it? I want to keep it and I want to hold it in perpetuity, or I just want to cash flow from it forever. That's great, but that's probably not the best thing for these guys right here, these limited partners. They don't, They don't want to be exposed forever. Now, if you have royalty rights or something and they get their principal back plus some and then get it, just get a check forever, that's fine. But usually people are saying, well, no, I want to, I want to buy my limited partners out and I would just want to hold the asset forever. I mean, you can, and that's kind of where this concept of a holding company comes in. So it can be either an LLC or a corporation. You know, you just want to talk to a legal advisor. I mean, the main reason why people do funds like the general partnership, limited partnership structure is this carried interest is a tax loophole. And you know, if you were just to do this same thing through a corporation, you're going to get taxed way more. And you're not subject to the same carried interest loophole. So, I mean, that's the main reason people do funds. But if you want to go out and just build this property or buy this property and cash flow from it forever, then you should probably just syndicate it. You know, these one-off deals and, you know, because syndication, you can write the terms. It's just not as complicated because you have to adhere to, you know, every LP's wants and needs. A holding company, you can, you can say, hey, look, at the end of the life of the fund, you know, when I'm going to sell, because I'm going to sell this asset and the money is going to go, the money is going to go back, you know, through here and then come back to you guys and then also, you know, pay out the The GP as well. I'm going to say, look, I'm going to sell it over to this holding company over here, and that way I'm going to hold it and cash flow from forever. Well, there's a couple of things there. First up is this holding company probably doesn't want to do that. That's probably not in the best interest of the holding company because you've already added your value to this asset. It's already appreciated. It's already— you forced appreciation, either through forced or natural appreciation. So like you may not really want to do that. Like this, it's not that great for the holding company. Additionally, it's not like super, like it just doesn't look good to the LPs. It just makes it look like, you know, you are just wanting to, you know, get the most gain here. So they're probably going to require that if in a structure like this, that you have an auditor come in and make sure that this asset is sold at fair market value. So basically what you would have sold it Forehead, you just, you know, sold it to somebody else. You know, this company can come in and they're going to come in and audit it. So don't get me wrong, you can do that. But the second problem is this holding company has to have money to buy the asset, right? So when people invest in holding companies, either an LLC or corporation, uh, you know, they have it, they're structured differently. It's like investing into a, you know, private market deal. So they're going to come in and, you know, they're, you know, invest. You can have investors come in and buy shares, stock of your company, interests of the LLC. But here's some considerations. It's usually private. So, you know, these dollars come in. This is usually a private entity. So then these shares are very illiquid, right? So people don't want to invest in something that's illiquid. They want to, they want to get their money back. So it's kind of harder to attract dollars there, and it's all you know. It's very much a blind pool because people want to know what asset you're buying, right? And in holding companies, it's very usually opportunistic, and it's just like I decide 100%. I decide when to sell. I decide everything, and you're now an owner in this company. If they want to get out, their their shares are harder to sell. It's a secondary market transaction, and it's just tough now. If it's public, that's it. It's usually a bit better. Like if it's a public entity, obviously they can share their sell their shares a lot easier. So a perfect example of this is Warren Buffett, right? A lot of people say Warren Buffett's the greatest investor of all time. Warren Buffett is not a hedge fund manager. He did not set up one of these. He basically set up a holding company. It was almost like a reverse merger slash SPAC. Because he acquired like a shell corp. So he basically acquired one of these and then he just started buying and trading shares. And you're regulated differently than if you are a fund. A fund has a lot more freedom. A fund, I mean a holding company does not. So basically a fund can do whatever it wants, I mean within regulation. A holding company has to report. They have to do a ton of, it's definitely more costly. You know, the direct payment out isn't as good just 'cause of the, you know, carried interest, the tax benefits aren't as good. Now, obviously Warren Buffett made it work, you know? Like a holding company can be great. It's just a different route to go. It's definitely a lot easier if it's public. So, and then obviously, you know, Warren, he, you know, will acquire majority stakes in companies over time and, you know, get in and out of them. You know, some common ones is insurance. You know, with GEICO and you know Delta. You know, he really liked airline stocks. You know, he's a value investor. He really liked common ones like Coke. And you know, he looks at you know dividends and Kroger and you know all these other ones that he'll buy majority stakes or I mean there's kind of a lot there. If you own more than ten percent of outstanding shares, you know you're kind of regulated as an owner. A whole different conversation. But I hope that this video kind of shows you the differences of a of a fund. So. So a fund is buy and sell. A holding company is just way longer term. Okay? Like this is, hey, if you invest in this holding company via buying shares, you're buying stock of the company. Because over here, this limited partnership owns the asset, right? Because that's the problem is limited partners, they go and buy, like the manager is managing the limited partnership. The limited partnership has custody of the asset. And that's when managers are like, no, well, I want to own that asset over here. Well, you can't do that in a fund. If you want to do that, you need to have a holding company. So I hope you guys learned something in this video. Let me know if you have any questions. Hope you guys have a good one.
