The financial environment evolution over the last years has incited managers to adapt their existing models, this resulted in many promoters in private equity, venture capital and real estate sectors switching to the pledge fund structure.
Pledge Fund are investment vehicles similar to the traditional models but with an emphasis on the fee’s options to investors in exchange for their rights to opt in and out of a specific deal of the fund.
The managers have to provide investments opportunities during a period of time, generally between 2 and 3 years, to their investors which are allowed to participate on a deal by deal basis. The investors in pledge funds have committed capital to cover fund expenses and fees.
The investors can naturally also refuse to participate but are at least obliged to take part in a predetermine number of deals, otherwise they will lose their ability to participate in future deals.
This type of fund enables emerging manager to get an entry ticket into the private equity world and start their own traditional private equity or venture capital fund later.