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Let’s face it, finance and investment is a big, big space. And no matter how well versed we might be in this world, there are tools for wealth generation that might slip our eye.
In the investment landscape today, there exists a powerful financial instrument that is gaining popularity among astute investors: Parallel Funds. But what are parallel funds?
As a leading alternative investment platform, Assetmonk is committed towards providing investors with innovative opportunities for wealth growth. And today we’ll dive into what are parallel funds, how they can be used for wealth generation, and how they differ from main funds & traditional investment vehicles.
Understanding Parallel Funds
At their core, parallel funds are a type of investment structure where multiple funds operate simultaneously, with each focusing on the same or similar investment strategy.
Basically, parallel funds are a separate fund entity than the main fund but they work alongside the main fund and share the same basic investment philosophy.
You can visualise parallel funds and main funds as two train tracks running parallel to each other, with two different trains travelling on them, but ultimately headed towards the same destination.
Why Are Parallel Funds Created?
Parallel funds are usually created by private equity firms. These private equity firms create the main fund, and then the parallel fund to address various legal, tax, regulatory or accounting considerations that might arise.
But don’t worry. Investors who put money in the parallel funds receive about the same economic exposure as investors in the main fund. This includes similar profits, rate of returns, and risk.
Private equity firms who create these parallel funds ensure consistency across both the funds. For example, parallel funds co-invest and divest alongside the main fund, on a proportionate basis.
One of the biggest advantages of a parallel fund is that it allows the manager to operate two funds at the same time, and drive them towards similar financial goals of wealth generation and long term investment.
Are Parallel Funds Better than Main Funds?
If you compare parallel funds vs main funds in the hope of finding a clear winner, than you’re looking at it the wrong way. It’s not about one fund being better than the other, but rather about their structure and financial purpose.
Whether your aim is short term investing or long term investing, is an important question. Parallel funds share the same investment strategy as the main fund. However, they are also more flexible and designed to cater towards diverse investor profiles who aim to create a diversified investment portfolio.
Main funds, on the other hand, are the firm’s primary investment vehicle, and have a more specific focus on a particular investment strategy.
While both funds serve the ultimate financial aim of wealth creation, parallel funds can offer investors with added flexibility.
This is done by accommodating for various investor needs, and also by providing them with additional options for investment.
Parallel Funds vs Main Funds: Key Differences
| Aspect | Parallel Funds | Main Funds |
| Diversification | Invests across multiple strategies or sectors simultaneously, spreading risk. | Typically focuses on a single strategy or asset class, offering less diversification. |
| Flexibility | Offers flexibility in asset allocation, allowing investors to choose from various parallel funds. | Often follows a predefined investment mandate, providing less flexibility. |
| Customization | Provides a higher degree of customization, with options tailored to different investment objectives. | Tends to have less customization, with limited options for investors to choose from. |
| Risk Management | Helps mitigate risk through diversification, reducing the impact of adverse events on the portfolio. | Exposes investors to higher risk concentration, as all assets are pooled into one strategy or asset class. |
| Portfolio Performance | Potentially enhances returns by investing in multiple strategies or sectors. | Returns may be more volatile due to the concentrated nature of the investment. |
| Investor Experience | Offers a varied investment experience, with the ability to select strategies that align with individual preferences. | Provides a uniform investment experience for all investors, with little variation in strategy or asset allocation. |
| Operational Efficiency | Allows for separate management of each fund, potentially improving operational efficiency and risk management. | Requires centralized management of all assets, which may lead to operational challenges and increased complexity. |
Parallel Funds Benefits
Here are some ways in which parallel funds facilitate short term investment & long term investing strategies for wealth creation:
- More Investors
Because now there is an additional fund alongwith the main fund, you can increase the number of investors. Moreover, if there are any regulatory or jurisdictional regulations on having a set number of limited partners, these restrictions can be overcome by simply creating a parallel fund structure.
- More Capital
Now that the number of investors has increased, that means the amount of capital you can invest also increases. This in turn allows the firm to create larger and more diversified investments for the investors.
- More Choices
By pooling investors who have similar investment strategies and wealth creation goals, the firm can provide them with more and diversified choices and also financial and tax benefits that come with investing in a parallel fund.
Bottom Line: Invest with Assetmonk
For any successful investment, finding the right balance between risk and reward is key. Factors such as your risk tolerance, investment goals, desire for stable monthly income or long term potential goals, all play a huge role.
The best way to do that is by strategically planning out your investment strategy, and creating space for a number of diversified investments in your portfolio. Striking the right balance helps investors remain confident even in the face of market fluctuations.
Assetmonk, a new age alternative investment platform specialising in commercial real estate and fractional ownership of high end commercial properties, is always ready to guide investors on their journey towards building a well-rounded and prosperous portfolio.
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