Investment funds launch all the time with much fanfare and almost no money behind them. A few pull it off, the rest simply run out of road.
I’ve never met Sabrina Carpenter, and I doubt very much that she is even aware of my existence. Declaring, then, that I intend to court and ultimately marry her would be ridiculous. Akin to launching an investment fund without any funds.
All too regularly, however, investment funds do just that, launching themselves with much fanfare but little ballast, on little more than a wing and a prayer. Some manage to pull it off, others collapse quickly under the weight of their own hubris.
The trick is often possible because a fund is rarely (indeed, almost never) an actual pile of money, instead a much more vague (but usually real) promise about a pile of money, promised by pension schemes, endowments, insurers, and limited partners, or LPs. These various entities usually sign a pledge or memorandum of understanding (MoU) to hand over cash later, when asked to do so by the fund. (MoUs, however, are in many respects not a great deal different to downloading Sabrina Carpenter tracks and announcing that we’re in touch and the wedding might take place soon). The fund manager meanwhile then sets off in search of deals, ‘calling up’ the promised capital when they find a deal they like the look of. Until that call comes, however, the money sits in somebody else’s account, no doubt earning somebody else a return.
This is the blind pool, which basically means that a fund can exist, on paper at least, before a single euro has been invested by anyone, anywhere. The rest is marketing, usually preceded by expensive launch events at expensive venues, worthy LinkedIn posts talking up a sector (or a buzzword, a country, a region, a city) and an obligatorily futuristic/minimalist website complete with a photograph of a modern office building (needn’t be yours) and away you go. The number that appears in the (usually copy/pasted by eager online news outlets desperate for content) press release is whatever you want it to be. The ‘target size’ of your fund is, after all, just that: a target.
While some of those targets are realistic, and often surpassed, many turn out to be the exact opposite. Infamously, in July 2019 Japan’s SoftBank announced Vision Fund 2 at 108 billion US dollars, with Apple, Microsoft, Foxconn, Standard Chartered, three Japanese banks and a host of insurance and securities firms named as participants. None had actually put in any real money, instead signing a series of MoUs. In the case of Vision Fund 2, few of the MoUs ever delivered any actual cash, and SoftBank ended up pouring in funding itself.
SoftBank are not, of course, charlatans. Far from it, in fact (it commendably puts its own money where its mouth is). Indeed, fewer fund managers than cynics claim are, and the genuine frauds tend to be relatively small scale. In December of last year the United States Securities and Exchange Commission (SEC) charged Shahin Ahmed, the personal driver of a hedge-fund manager, with persuading three people he was a professional money manager and losing more than one million US dollars of their savings. Ahmed allegedly guaranteed risk-free investment, while fraudulently collecting fees from his clients.
The eye for a decent deal
But outright villains (fortunately, for naive investors) are the minority. The far larger category is that overly optimistic group of fund managers who mistake enthusiasm (real or otherwise) at one of those expensive launch events for actual cash. What’s more, the market does appear to have become rather good at spotting the overly optimistic. According to Pitchbook and the National Venture Capital Association (NVCA), reporting on US venture capital, just 106 first-time funds closed in 2025, which is a 78 per cent drop down from 478 first-time funds closing in 2022. In the first half of 2025, 12 American venture firms took more than half of all the capital raised, with Founders Fund alone taking more than twice what every other first-time manager in the country managed between them. Optimism, it seems, will only get you so far, and the distance appears to be shortening at quite the pace.
For all that, there is an honest way to launch an investment fund without any actual funds, and it probably deserves more respect than it gets. Independent sponsors, or ‘fundless sponsors’ (oxymoron not withstanding), find a deal first and raise the cash for it later, one deal at a time, mostly from small offices that go nowhere near the corporate website.
Again, optimism is not enough, but the eye for a decent deal usually is. Only a select few can pull it off, almost always those who can spot deals before they even have a fund. Remember, announcing a fund costs very little, delivering returns is another matter. Meanwhile, I’ll keep working on Sabrina.
Photo: Dreamstime.