The six levels, one at a time. No. 3: Fund
To Fund or Not to Fund
The fund is the default. Defaults deserve a second look.
By Katriona Lee, Reuben AI. Updated .
The short answer
A commingled fund suits an investor who wants exposure to a strategy and is happy to delegate asset choice to a manager on shared terms. A vehicle, co-investment or direct deal suits one who wants more say over the asset, the terms, or both, and is ready to carry more of the diligence.
That is the question. Whether 'tis nobler to commit to the fund and trust the manager's choices, or to take arms against a sea of term sheets and pick the assets yourself. Neither answer is right in general. One of them is right for you, for this capital, now.
Walk the path. Three questions.
Do you want exposure to a strategy, rather than to one specific asset?
A thinking aid, not investment advice.
What you are really buying in a fund
Not the assets. You have not seen most of them yet. You are buying a manager's judgement, applied over years, on terms you share with every other investor in the pool. That is why fund diligence leans so heavily on the manager level above it, and on reading the holdings through the fund, not at the summary line.
What changes when you step outside it
Every step away from the fund moves work onto your desk. A vehicle gives you terms of your own. A co-investment gives you the asset choice. A direct deal gives you everything, including the full diligence and the full record of why you decided. More control, more evidence to hold.
The mistake is mixing them up
Investors increasingly hold all four at once: fund commitments, a few vehicles, co-investments and some direct deals, often with the same managers and sometimes the same assets. Seen separately, each looks fine. Seen together, on look-through, the overlaps appear.
Previous: When to use leverage as... leverage. Next: Wrappers Matter. Related: co-investments and direct deals in portfolio diligence.
Questions and answers
What is a commingled fund?
A commingled fund pools capital from several investors into one portfolio run by a manager, on shared terms. It is the fund level of the six levels of private markets.
When is a fund the right choice?
When the investor wants exposure to a strategy and is comfortable delegating asset selection to a manager on shared terms, rather than choosing individual assets.
What is the alternative to a fund commitment?
A vehicle such as an SPV or feeder, a co-investment alongside a manager, or a direct deal. Each moves more of the decision, and the diligence, to the investor.
What does fund-level diligence cover?
Strategy, terms, pacing, concentration, fund-level facilities and the holdings on look-through, alongside diligence on the manager running it.
Does Reuben AI recommend fund or direct?
No. Reuben AI keeps the evidence for each route linked in one record so the team can compare them. The decision stays with the investor.
Reuben AI is built as one linked record across all six levels of private markets. See it on your own deals, or explore what it could add for your platform's clients.
Read next: The six levels of private markets diligence or browse the Resource Hub.