Fundraising, investment and harvesting: the stages of a private capital fund

Private capital investment has many particularities that investors must know before committing themselves.

In this post we explain the process of investing in a private capital fund, its stages and the main strategies in which these funds invest.

Fundraising: the process begins with the search for investors who want to commit to invest a certain amount of capital in the fund over the next few years. This first stage usually lasts between one and one year and a half. At this point, the investor does not have to contribute all the committed capital, but the fund will make capital calls for amounts lower than the amount initially committed.

Investment: once the necessary capital has been obtained, the fund closes and the investment period begins. In this stage, the management company makes capital calls as it finds investment opportunities.

Divestment or harvesting: when the management company considers it appropriate, the divestment process begins by selling the fund's assets. In this stage, investors receive the capital contributed plus gains, which are known as distributions. However, it is not a 100% linear process; there may be investments and divestments at the same time.

Life cycle of a private equity fund

When investing, we can choose in which type of project we want to trust our funds. At Crescenta you will mainly find Private Equity, Venture Capital, infrastructure and impact funds.

Private equity (PE)

• Invest in private companies
• The capital is used to acquire companies, invest in their growth and improve their profitability
• It usually generates higher returns than investing in the stock market

Venture Capital (VC)

• Invest in companies that are in an early stage of development with a strong technological component (startups)
• Greater potential for returns
• Higher risk when investing in companies that have not yet demonstrated their capacity to generate revenue and profit

Infrastructure

• Invest in physical structures and essential services such as roads, bridges or airports
• Stable and predictable cash flows, in a highly regulated sector with significant entry barriers
• Good geographical and sectoral diversification

Impact

• Invest in companies and organisations that aim to generate social and environmental, as well as financial returns
• They may have different objectives, such as improving the quality of life of local communities, protecting the environment, promoting gender equality and increasing access to education
• Financial returns are not the only goal. The companies and organisations invested in are expected to be transparent in their operations and account for their social and environmental impact

Author

Sofía Cisneros

Communication and content - Crescenta