Deal StructuresNil Masferrer JiménezAugust 26, 2026

Fund of Funds and SPVs: When Your LP Interest Is in Something Else

You wire to one entity, which invests in another, which owns the building. Each layer has its own documents, its own manager and its own economics, and only one of them is the deal you were shown.

Sometimes the entity you wire money to is not the entity that owns the property. Between you and the building there is another vehicle: a fund of funds, a capital aggregator, or a special purpose vehicle formed for the occasion.

The arrangement is common, legitimate and useful. It also changes several things about your position that are easy to miss, because the marketing describes the underlying deal and the documents govern the vehicle.

What the structure looks like¶

You and forty others subscribe to the aggregator, Entity A. Entity A subscribes, as a single limited partner, to the sponsor's deal, Entity B. Entity B owns the building. Three entities, two sets of documents, and only the last one has a roof on it.

Everything the sponsor's operating agreement says applies to Entity A, not to you. Your rights are whatever Entity A's own agreement gives you against Entity A's manager.

Why they exist¶

Minimums. A sponsor's minimum investment can be $50,000, $100,000 or considerably more. An aggregator lets ten people at $25,000 occupy one $250,000 position.

Access. Some sponsors will not take retail subscriptions at all, and deal only with a small number of larger limited partners.

Administrative simplicity for the sponsor. One investor to communicate with, one Schedule K-1 to issue, one signature to collect on a consent.

A business for the aggregator. Running one is a way to earn a promote on capital the aggregator did not contribute, which is a reasonable business and also the reason to look closely at the terms.

What it costs¶

The cost is a second set of economics stacked on the first, and the total is rarely presented as a single figure.

Hypothetical example

Two layers of promote on one deal

Hypothetical. The underlying deal offers an 8% preferred return and a 70/30 split above it. The aggregator charges a 1% annual management fee and takes 10% of what it receives above the preferred return.

Suppose the underlying deal performs, and $100,000 of your capital would have earned $60,000 of profit as a direct limited partner over the hold.

Through the aggregator, that $60,000 first passes the underlying waterfall unchanged. Then the aggregator's own layer applies: 10% of the profit above the preferred return goes to the aggregator's manager, and the management fee has been drawn each year regardless.

Depending on how much of the $60,000 is profit above the preferred, the second layer can take several thousand dollars, and the management fee several thousand more. The underlying deal did not change. Your share of it did.

Illustrative arithmetic on invented figures. Not a projection, not an offering, and not a representation about any real transaction.

None of that is hidden — it is in the aggregator's own documents — but it will not appear in any material describing the underlying deal, and the two documents are frequently sent at different times.

The question about compensation¶

This is the part that deserves a direct question, asked plainly.

Somebody who is compensated for introducing investors to somebody else's securities offering may be acting as a broker, and brokers generally have to register. There are structures that avoid the issue — where the aggregator's manager is genuinely managing a fund and being paid for that, rather than being paid to raise capital for a third party — and the distinction turns on facts.

What you give up¶

Beyond cost, three things change.

Information rights. Your rights are against the aggregator. Whether you see the underlying deal's investor updates, financial statements and capital call notices depends on whether the aggregator's agreement obliges it to pass them on. Many do not.

Voting. The aggregator votes its single limited partner interest in the underlying deal. How it decides how to vote — by polling its own investors, or at its manager's discretion — is set by its own agreement, and the discretionary version is common. This matters most in exactly the situation where voting matters: a removal or a consent to new capital.

Tax reporting. You receive a Schedule K-1 from the aggregator, which receives one from the underlying deal. The second one has to arrive before the first can be issued, so K-1 timing is later than it would otherwise be, sometimes considerably.

Why sponsors allow them, and what that implies¶

An aggregator only exists because a sponsor permits it, and understanding the sponsor's motive clarifies the arrangement.

For the sponsor, one investor is administratively cheaper than forty: one Schedule K-1, one signature on a consent, one point of contact, one entry on the member list. Where a sponsor's minimum is high specifically to limit the number of investors, an aggregator is the mechanism that lets smaller capital participate without the sponsor bearing the cost.

That has a consequence worth naming: the sponsor's relationship is with the aggregator, not with you. If the deal encounters difficulty, the sponsor communicates with one party, and whether that reaches you depends on the aggregator's own practice. If a capital call arrives, it arrives at the aggregator, which then has to run its own process with its own investors on its own timetable — inside whatever deadline the sponsor set.

That compression is the practical risk of the structure, and it is the one least discussed. A ten-day notice period at the deal level becomes a much shorter period once it has passed through an intermediate entity, and the aggregator's agreement may well permit its manager to decide on your behalf rather than poll you at all.

Establishing how the aggregator handles a capital call, before subscribing, is therefore worth more than any comparison of fee rates.

Reading one¶

The structure is not a problem in itself. It becomes one when an investor believes they are in the deal they read about, and they are actually in something that owns a share of it, on terms they were never shown.

Primary sources

Every factual claim above is traceable to a filing, a rule or an agency publication. These are the ones this article relies on.

SEC, the exempt offering frameworksec.gov
SEC, private placements under Rule 506(b)sec.gov
Investor.gov, SEC investor bulletins and alertsinvestor.gov
Investor.gov, private placements explainedinvestor.gov

Questions readers ask

What is a fund of funds in a syndication context?

An entity that pools a group of smaller investors into a single limited partner position in an underlying deal. The investors hold an interest in the aggregator; the aggregator holds the interest in the property-owning entity.

Why would I invest through one?

Access. It gets you into a deal below the sponsor's own minimum investment, which for institutional-quality offerings can be substantial. It can also spread a small allocation across several deals.

What does it cost?

A second layer of fees on top of the underlying deal's fees, which can include its own management fee and its own promote. The total has to be calculated across both layers, and it is frequently not presented that way.

Is the person running the aggregator allowed to be paid for this?

It depends on what they are being paid for. Compensation tied to raising capital for someone else's offering can require broker-dealer registration, and that question is worth asking directly.

Who do I talk to if something goes wrong?

The aggregator's manager, not the sponsor. You are generally not a party to the underlying deal, have no direct information rights in it, and do not vote in it.