A pledge fund is a “semi‑committed” structure that sits between a blind‑pool fund and pure deal‑by‑deal club deals. It gives investors priority access to a manager’s pipeline but preserves the right to say yes or no on each transaction.

What a pledge fund is

In a pledge fund, investors sign up to a manager’s strategy and process, but do not irrevocably commit capital for 10–12 years as in a traditional fund.

  • The manager (sponsor/GP) builds a group of “pledge” investors who agree to review every eligible deal the manager sources.

  • For each transaction, investors receive a full package (IC memo, terms, structure) and decide deal‑by‑deal whether to opt in, and for how much.

It is closer to a standing club of LPs than a pooled fund. You can think of 3 points on a spectrum:

  • Blind‑pool fund: Commit now, manager chooses deals later.

  • Pledge fund: Commit to the relationship, opt‑in per deal.

  • Deal‑by‑deal club: No prior relationship; deals marketed one‑off to whoever is interested.

Pledge funds preserve much of the manager’s ability to plan pipeline and resourcing, but keep investors firmly in control of individual deal selection.

Typical structure and economics

Pledge funds are usually set up as a platform entity plus SPVs:

  • A light “platform”/management company governs the relationship, fee schedule, and terms for all future deals.

  • Each individual deal sits in its own SPV, where participating investors subscribe based on their chosen ticket size.

Economics commonly look like this:

  • Platform fee: Modest annual fee (e.g., 0.5–1.0% on pledged capital, or a retainer) to keep the manager resourced.

  • Deal‑level fees: Transaction/monitoring fees at SPV level, often with offsets against carry.

  • Carry (promote): Performance fee on each successful deal, typically with a hurdle at deal level.

The key difference from a fund: there is no automatic drawdown of capital; every deal is its own opt‑in decision.

Why investors like pledge funds

For family offices and institutions, pledge funds can solve several problems:

  • Control: You retain an explicit right of refusal on each deal; if leverage, sector, or valuation feel off, you simply pass.

  • Access: You still see a curated flow of transactions sourced and diligenced by a specialist, without having to build a full origination engine in‑house.

  • Learning loop: Reviewing multiple deals from the same manager over time gives you deeper insight into how they think, improving your ability to underwrite or calibrate the relationship.

For investors already doing deal‑by‑deal, a pledge fund can add structure and predictability without sacrificing discretion.

Why managers use pledge funds

For managers, especially emerging or sector‑specialist GPs, pledge funds are often a stepping stone between independent‑sponsor work and a full institutional fund:

  • Visibility: They can plan deal capacity knowing they have a pre‑identified group of LPs who will look at transactions seriously.

  • Speed: Deals can move faster than pure deal‑by‑deal, because the legal framework and core commercial terms are pre‑agreed.

  • Track record: Executing multiple deals through a pledge base creates a coherent performance story that can later support a traditional fundraise, if desired.

The trade‑off is capital certainty: there is no guarantee that LPs will participate in any given deal.

How a pledge fund works in practice

Step 1: Platform agreement

Investors and manager agree on:

  • Strategy (asset classes, size, geographies, risk profile).

  • Economic framework (fee ranges, carry ranges, cost sharing, co‑invest rules).

  • Governance (what must be disclosed, timelines to respond to deals, conflicts policy).

This is often documented in a master agreement or set of bilateral letters.

Step 2: Deal presentation

For each potential investment:

  • The manager shares a standard pack: teaser → IC memo → data room.

  • Investors get a defined review window (e.g., 2–4 weeks) to perform their own diligence and submit soft/hard indications.

Priority for allocation usually goes to pledge investors who respond within the window.

Step 3: SPV formation and closing

Once demand is confirmed:

  • An SPV is formed with a standard set of legal docs (LPA/operating agreement) reflecting the pre‑agreed economic ranges.

  • Participating investors sign deal‑specific subscriptions and fund their commitment into the SPV.

Non‑participating pledge investors simply skip that deal and wait for the next.

Step 4: Management, monitoring, and exit

  • The manager runs the asset as agreed (board roles, reporting, value‑creation plan).

  • Economics (fees, carry) are crystallised deal‑by‑deal; there is no cross‑subsidisation between good and bad deals unless expressly negotiated.

Investors can therefore end up with a bespoke portfolio of pledge‑fund deals aligned with their preferences and pacing.

  • Pre‑agreed governance and economics save negotiation time on each transaction.

  • Relationship depth improves trust and reduces signaling risk (you’re not just “one of many” prospects).

  • Process standardisation keeps legal and execution friction lower for repeat transactions.

 

 

Strategic advantages and trade‑offs

Advantages vs blind‑pool fund

  • You keep veto power on each investment.

  • You can tilt your exposure (e.g., more into infra, less into venture) by electing deals that match your convictions.

  • You effectively run your own deal selection while leveraging the manager’s sourcing and structuring capability.

Advantages vs pure independent‑sponsor model

  • Pre‑agreed governance and economics save negotiation time on each transaction.

  • Relationship depth improves trust and reduces signaling risk (you’re not just “one of many” prospects).

  • Process standardisation keeps legal and execution friction lower for repeat transactions.

Trade‑offs

  • Managers lack capital certainty; if markets turn or LPs change priorities, deals may struggle to be fully subscribed.

  • Investors must commit time and attention to reviewing each opportunity; this is not a “set‑and‑forget” solution.

  • Over‑concentration is still a risk if you say “yes” too often to similar deals.

When a pledge fund makes sense for you

A pledge fund can be particularly compelling if:

  • You already review a lot of direct deals but want a curated stream from a manager you respect.

  • You dislike full blind‑pool commitments but are happy to work closely with one or two trusted GPs.

  • You have the internal resources (or advisors) to review 5–15 deals a year and make timely decisions.

If you are resource‑constrained or want very broad diversification, a conventional fund or selective co‑invest program may still be more appropriate.

How to evaluate a pledge fund opportunity

Use questions like:

  • Manager quality: “Would I back this team with a traditional fund?” If not, why trust them deal‑by‑deal?

  • Deal pipeline: “Can they realistically source enough attractive deals to make my time worthwhile?”

  • Economic balance: “Are fees low enough and carry aligned, given I am still doing my own underwriting?”

  • Governance: “Are my rights at SPV level robust—board, information, reserved matters, and conflicts oversight?”

Treat the platform agreement as a constitution: once signed, it shapes every deal that follows.

Links to Pledge funds literature:

  • Creatrust – Pledge Fund structuring (Luxembourg)

  • AIMA – “Pledge fund: An à la carte investment programme”

  • Investopedia – Pledge fund concept and examples