Funds are a significant aspect of the business strategy in the private lending market. However, funds do have additional elements to be cautious about and consider. Here are three significant mistakes funds and fund managers run into and ways to avoid them.

  1. Poor Panic Management: Wall Street is everywhere, and “recession” is all over the news. This has caused undue panic and anxiety to most lending businesses and their funds’ management. Meanwhile, every economic downturn brings opportunities. With the secondary market drying up, direct lenders with discretionary capital can grasp those opportunities by taking over the remaining loan origination that correspondents and conduit programs would often handle.
  2. Insufficient Data and Reporting: Businesses in the Industry must be able to identify their current position and the available prospects for their funds. As a business, if you do not have the tools to get data about your fund’s portfolio accurately, it is more like getting blindfolded while riding through a storm. The presence of adequate performance indicators will provide accurate reports on your performance and give appropriate forecasts and projections.
  3. Insufficient Legal Coverings in your offering documentation: This is a very particular mistake with lenders and managing their funds. Many operating or limited partnership agreements for funds may not give the fund manager enough legal power or protection. Specific essential abilities include discretionary authority to restrict withdrawals and pay-outs, cease operations, acquire additional capital, secure tenure as a manager or general partner, and extend or contract the business model. In addition, many offering contracts lack adequate indemnification and arbitration clauses that would prevent the fund manager from being saddled with excessive legal fees for doing nothing wrong.

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