An investment letter is an essential document for any investor. It formally introduces you to a fund manager or financial institution and makes the case for why they should accept your capital. While formats vary, most investment letters cover key details on your investing experience, objectives, risk tolerance, liquidity needs, time horizon, and capital commitment. Here are the core sections to include in your own investment letter.
Introduce yourself and articulate your credentials
The opening paragraph should provide a brief background on yourself or your firm. Highlight your investing track record, credentials, and relevant experience in just a few sentences. This establishes credibility upfront before making an ask for capital.
State your investing objectives and strategy
Explain your investment strategy and objectives in detail. For example, are you focused on long-term capital appreciation or dividend income? Do you invest in public or private markets? What asset classes, sectors, or geographies do you target? Outline your philosophy and process for generating returns.
Specify your risk tolerance
Communicate your appetite for risk, as this directly affects the type of investments you’ll consider. Quantify your tolerance for volatility if possible, such as maximum drawdowns you’re willing to withstand. This gives the fund manager guidance on appropriate investments.
Note liquidity needs and time horizon
Liquidity refers to how quickly you may need to withdraw your capital. Your time horizon indicates the duration of time you expect to keep money invested. These factors help determine suitable investments and structure. Be as precise as possible on your liquidity and time horizon.
Provide expected capital commitment amount
Specify the capital amount you plan to commit, such as an initial and ongoing investment total. This gives the fund manager an idea of the scale you plan to invest at. Depending on the situation, you may want to indicate flexibility to invest more over time.
An effective investment letter communicates all the key details a fund manager needs to evaluate aligning with you. Be concise yet thorough in covering your background, objectives, risk tolerance, liquidity needs, time horizon, and expected capital commitment.