How Underrepresented Fund Managers Can Stay Legally Compliant While Scaling
As more underrepresented fund managers enter the private capital markets, their ability to build and scale successful funds hinges not only on capital access but also on regulatory compliance. Legal missteps can jeopardize fundraising momentum, investor confidence, and long-term viability. By understanding the legal landscape and implementing compliance best practices early, diverse and first-time managers can mitigate risk while positioning themselves for sustainable growth.
This article outlines key legal strategies underrepresented fund managers can use to remain compliant while scaling their operations.
1. Establish a Clear Fund Structure from the Start
Choosing the right legal structure is foundational. Most emerging managers operate through:
A limited partnership (LP) structure for the fund
A management company organized as an LLC or LP
Work with legal counsel to ensure alignment between the fund and management company, and clearly delineate roles, ownership, and income streams.
2. Register or Qualify as an Investment Adviser
Depending on the size and scope of the fund, managers may need to:
Register with the SEC or state regulators as an investment adviser
Qualify as an exempt reporting adviser (ERA)
File Form ADV Parts 1 and 2 and maintain up-to-date disclosures
Failing to comply with registration or exemption requirements may trigger enforcement actions or disqualify a manager from future capital programs.
3. Maintain a Robust Compliance Program
Emerging managers should implement a compliance framework tailored to their fund strategy and investor base. Core elements include:
A compliance manual and code of ethics
Policies on personal trading, gifts, and political contributions
Annual compliance reviews and training for team members
These measures not only support legal compliance but also demonstrate operational maturity to potential LPs.
4. Ensure Transparent and Consistent LP Communications
Underrepresented managers, especially those targeting mission-driven or institutional capital, must:
Align marketing materials with offering documents
Avoid exaggerated claims, performance projections, or unverified track records
Maintain a consistent message across pitch decks, DDQs, and investor updates
All materials should be reviewed by counsel for compliance with antifraud rules.
5. Execute Strong Fund Documents
Key fund documents should be customized to reflect the unique strategy and goals of the manager:
Limited Partnership Agreement (LPA)
Private Placement Memorandum (PPM)
Subscription Agreements
Side Letters (if applicable)
Clarity in these agreements reduces the risk of investor disputes or operational uncertainty.
6. Stay Ahead of Regulatory Developments
Regulators are increasingly focused on transparency, fee disclosures, and fairness in capital allocation. Underrepresented managers must:
Monitor SEC rule changes impacting private funds
Comply with Blue Sky laws in each investor’s jurisdiction
Be aware of ESG and DEI-related disclosures that may apply
A proactive regulatory posture demonstrates credibility and foresight.
7. Seek Strategic Legal and Operational Partners
Engaging experienced fund formation attorneys, compliance consultants, and fund administrators can:
Reduce the risk of legal missteps
Improve reporting and investor relations infrastructure
Provide mentorship and referrals in the fund ecosystem
Strategic partnerships can help bridge the resource gap for emerging managers.
Scaling a fund as an underrepresented manager comes with unique challenges—but also distinct opportunities to lead with integrity and innovation. By grounding their growth in strong legal and compliance practices, emerging managers can build trust with investors and regulators alike.
If you are a first-time or underrepresented fund manager seeking legal guidance on fund formation, registration, or compliance, contact our firm at 786.461.1617 for a consultation. Our attorneys are dedicated to supporting diverse managers with the legal strategies and structures needed for long-term success.