# Fund management **Author**: Rita Astoor **Read time**: 7 minutes **Published date**: January 13, 2025 Understand the key components of fund management for private equity and venture capital funds. We'll cover how fund management works throughout a fund's lifecycle—from capital allocation, risk management, portfolio company oversight, asset management, and fund administration. ## Contents - [Fund management](https://fund-forecasting@carta.com/learn/private-funds/management/#fund-management) - [What is fund management?](https://fund-forecasting@carta.com/learn/private-funds/management/#what-is-fund-management) - [The lifecycle of a fund](https://fund-forecasting@carta.com/learn/private-funds/management/#the-lifecycle-of-a-fund) - [The role of a fund manager](https://fund-forecasting@carta.com/learn/private-funds/management/#the-role-of-a-fund-manager) - [Private equity fund management](https://fund-forecasting@carta.com/learn/private-funds/management/#private-equity-fund-management) - [Raising capital](https://fund-forecasting@carta.com/learn/private-funds/management/#raising-capital) - [Deal sourcing and due diligence](https://fund-forecasting@carta.com/learn/private-funds/management/#deal-sourcing-and-due-diligence) - [Value creation](https://fund-forecasting@carta.com/learn/private-funds/management/#value-creation) - [Portfolio management](https://fund-forecasting@carta.com/learn/private-funds/management/#portfolio-management) - [Exit strategies](https://fund-forecasting@carta.com/learn/private-funds/management/#exit-strategies) - [Venture capital fund management](https://fund-forecasting@carta.com/learn/private-funds/management/#venture-capital-fund-management) - [Key differences between PE and VC fund management](https://fund-forecasting@carta.com/learn/private-funds/management/#key-differences-between-pe-and-vc-fund-management) - [Fund management software](https://fund-forecasting@carta.com/learn/private-funds/management/#fund-management-software) Private investment funds are pooled investment vehicles typically run by professional fund managers. “Fund management” is a broad term for the years-long process of operating and administering a fund throughout the fund’s lifecycle, from raising capital to determining an exit strategy. In this article, we’ll focus on how fund management works for private equity and venture capital funds. ## What is fund management? Fund management is the process of raising and overseeing investment funds that pool capital from multiple investors. Most private equity and venture capital investment funds are structured as [limited partnerships](https://fund-forecasting@carta.com/learn/private-funds/structures/) with at least one limited partner (LP), who invests money into the fund, and at least one [general partner (GP)](https://fund-forecasting@carta.com/learn/private-funds/structures/general-partner/)—usually an entity—that manages the fund. Within the context of VC and PE, fund managers (the GPs) use these pools of capital to acquire stakes in [private companies](https://fund-forecasting@carta.com/learn/startups/private-companies/), with the goal of selling those stakes in the future and returning the profits to their investors (the LPs). ### The lifecycle of a fund From the time a fund manager starts to raise a fund to whenever they exit their last investment, the lifecycle of a VC or PE fund often stretches to a decade or longer. At different stages of this [fund lifecycle](https://fund-forecasting@carta.com/learn/private-funds/management/fund-lifecycle/), fund managers typically focus on different tasks. In the early years of a fund, the manager will be more focused on raising capital and capital deployment. In later years, the fund manager’s role shifts toward fostering growth at their [portfolio companies](https://fund-forecasting@carta.com/learn/private-funds/structures/portfolio-company/) and pursuing potential [exit strategies](https://fund-forecasting@carta.com/learn/startups/exit-strategies/). ## The role of a fund manager The fund manager (the [management company](https://fund-forecasting@carta.com/learn/private-funds/structures/management-company/)) formally is the legal entity responsible for making decisions on behalf of the private fund. But the fund manager usually “outsources” support, research, and analysis of investment decisions to the management company, a [separate legal entity](https://fund-forecasting@carta.com/learn/private-funds/structures/entity-management/). Management companies vary widely in size, from global firms with hundreds of employees to solo-investment shops. Thus, fund managers can vary widely in the amount of support they receive. The ultimate purpose of the fund manager is to be a responsible steward for their LPs’ capital and provide those LPs with a financial return. In VC and PE, fund managers generate returns by investing in private companies, using the combination of their LPs’ capital and their own business expertise to help those companies grow and exit. In a more concrete sense, the role of the fund manager is manifold. Ultimately, every aspect of a VC or PE fund falls under the fund manager’s authority. Some of the key responsibilities include [capital allocation](https://fund-forecasting@carta.com/learn/private-funds/management/portfolio-management/asset-allocation/), risk management, [portfolio company oversight](https://fund-forecasting@carta.com/learn/private-funds/structures/portfolio-company/), asset management, and [fund administration](https://fund-forecasting@carta.com/learn/private-funds/management/fund-administration/). ## Private equity fund management The broad strokes of fund management often look the same across different asset classes. But the details of the process can vary depending on the type of fund. ### Raising capital Most private equity firms raise the capital for their funds from multiple LPs, often dozens of different investors. These LPs come in many different forms, but mainly consist of institutional LPs like university endowments, public pensions, and sovereign wealth funds, as well as high-net-worth individuals. Fund managers often spend many years building and nurturing relationships with both current and potential LPs. Raising capital from these LPs is the lifeblood of any private fund manager: Without capital, it’s impossible to make new investments. ### Deal sourcing and due diligence After raising capital for a fund, the next phase of the fund management cycle is to decide how to spend that capital. The process of searching for investment targets is known as [deal sourcing](https://fund-forecasting@carta.com/learn/private-funds/management/deal-flow/deal-sourcing/). After a fund manager identifies a potential investment, they perform [due diligence](https://fund-forecasting@carta.com/learn/private-funds/management/deal-flow/due-diligence/), which involves researching the target company’s market, finances, operations, and management. If the fund decides it wants to invest, the fund manager attempts to negotiate and execute a deal with the company’s current owner or owners. ### Value creation After acquiring a target, PE fund managers turn their attention toward increasing the company’s value in order to eventually position it for a [profitable exit](https://fund-forecasting@carta.com/learn/startups/exit-strategies/). [Value creation in private equity](https://fund-forecasting@carta.com/learn/private-funds/private-equity/strategies/value-creation/) can take an almost infinite number of forms. A fund manager with a controlling stake in a portfolio company might bring on new management at the company, adjust the company’s strategy, implement new technology or efficiencies, sell off business lines, restructure the company’s balance sheet, among other strategies. ### Portfolio management [Portfolio management](https://fund-forecasting@carta.com/learn/private-funds/management/portfolio-management/) is a subset of fund management that involves ensuring that your investment strategy and the actual investments you make are aligned. Fund managers track the investments to ensure they align with the fund’s holistic strategy. ### Exit strategies After owning a portfolio company for some period of time, fund managers typically look for a way to exit their investment and return capital to their LPs. The most common exit strategy is [M&A](https://fund-forecasting@carta.com/learn/startups/exit-strategies/mergers-acquisitions/), where a fund manager sells a portfolio company to a new buyer, or an [IPO](https://fund-forecasting@carta.com/learn/startups/exit-strategies/ipo/). ## Venture capital fund management ### Raising capital Since VC fund managers tend to make minority investments in young startups, they often have lower capital needs and thus tend to raise smaller funds than their peers in private equity. This accessibility to smaller LPs is a characteristic of the VC space. ### Deal sourcing and due diligence Both PE and VC fund managers rely on their networks to source deals and conduct due diligence, but they often invest in different populations, with PE firms typically focusing on larger, mature private companies, while VC firms target earlier-stage startups. ### Value creation VC fund managers focus on helping young companies grow, with successful investments potentially yielding higher returns compared to PE investments. ### Exit strategies Common exit strategies for VC fund managers mirror those of PE, mainly involving M&A or IPO transactions. ## Key differences between PE and VC fund management | | **PE** | **VC** | |--------------------------|------------------------------------------------------------|---------------------------------------------------------| | Raising capital | Tend to raise larger funds | Tend to raise smaller funds | | Investment strategy | Make majority investments in mature companies | Make minority investments in younger companies | | Value creation | Many pathways to value creation | Value primarily created through growth | | Portfolio management | Majority owner of smaller number of companies (<10) | Minority owner in larger number of companies (20+) | | Exit strategies | Mostly M&A and IPO | Mostly M&A and IPO | ## Fund management software Many fund managers rely on software to help organize and administer their investments. Carta provides an end-to-end platform that’s custom built to help private fund CFOs manage every aspect of their funds, from calling capital to tax return preparation to assessing fund performance.