Private equity is investment in unlisted companies through funds that buy significant stakes, work for several years to increase the company's value and then sell at a gain. The investor commits capital for the long term, with typical horizons of eight to twelve years and very limited liquidity during that period.
For a management company, what is useful is not the definition but the mechanics: how a fund is structured, where its operational friction lies and what changes if interests are represented on blockchain. This article covers those three points.
How a private equity fund works
The management company, the general partner, raises the fund and makes the investment decisions. The investors, the limited partners, commit an amount that they do not pay in all at once: the management company calls it as it closes deals. When it sells a portfolio company, it distributes the result among the investors according to the agreed order.
The management company charges an annual management fee and a performance fee on the gain, the carried interest, usually conditional on exceeding a minimum return agreed with the investors. In Spain, the usual vehicles are venture capital funds and companies (FCR and SCR), managed by authorized management companies and supervised by the CNMV (Ley 22/2014).
The return comes late and in the agreed order. The first years concentrate capital calls and fees; distributions appear when sales begin, following a waterfall that returns capital and the minimum return first. It is worth understanding that schedule before committing: the commitment weighs for a decade even though the money goes out and comes back in stages.
Private equity and venture capital: where is the boundary
Venture capital is the branch of private capital focused on young companies: smaller tickets, minority stakes and the risk that the company does not survive. Classic private equity buys control positions in established companies, uses debt as leverage and executes operational improvement plans.
For the investor, the difference comes down to the dispersion of results. In venture capital, many portfolio companies fail and a few return the entire fund. In private equity, results are more concentrated and the individual risk of each deal is lower.
Structural friction: illiquidity and high ticket
Interests in a private equity fund are not listed. Anyone who wants to exit before the end looks for a buyer in a hand-negotiated secondary market, with frequent discounts to net asset value. Minimum entry amounts leave out qualified mid-sized investors. And the register of investors, capital calls and distributions are managed with manual processes that scale poorly.
That friction is not an accounting nuance: it conditions who the management company can target in fundraising and how much it costs to administer each additional investor.
Relationship with tokenization: fund interests on blockchain
A fund's stake is a financial instrument in Annex I of MiFID II, as we explain in what a financial instrument is (MiFID II). Tokenizing it does not change its legal nature: it follows the same marketing framework and the same supervisor. What changes is the representation: the register moves to a system based on blockchain recorded by an ERIR, the digital notary of the registry (Ley 6/2023; RD 814/2023).
| Aspect | Traditional register | Tokenized interests |
|---|---|---|
| Register of investors | Manually managed register book | Blockchain entry via ERIR |
| Minimum ticket | High; each investor adds administrative cost | Fractionalizable; marginal cost per investor decreases |
| Transfer | Secondary traded on a case-by-case basis | Transfer recorded in the register, under the fund's regulations |
| Capital calls and distributions | Manual processes per investor | Automatable on the register |
The limit remains regulatory, not technical. The fund's regulations and marketing rules determine who can buy, with what minimums, and under what information. Tokenization reduces operational friction within that framework; it does not replace it.
The process for an asset manager is in tokenization for funds and asset managers. The full issuance cycle, with ERIR and CNMV, in how to issue a security token in Spain. And if the starting point is understanding the general model, the reference is the asset tokenization guide.
Are you considering tokenizing your fund's interests? Take the issuance assessment (2 min) or request a proposal. If you prefer to start by reading, download the 2026 guide.
This content is informative and educational. It does not constitute legal, tax, or investment advice. Check the current version of each regulation in the BOE and on EUR-Lex.
HokenFi is a software and infrastructure provider; it does not provide regulated services (CASP, ESI, EAF, or ERIR). This article is informative and does not constitute financial or legal advice.
Frequently asked questions
What is private equity?
It is investment in unlisted companies through funds that buy significant stakes, work for several years to increase the company's value, and sell at a gain. Investors commit long-term capital, with typical horizons of eight to twelve years and very limited liquidity until the sale of the portfolio companies.
How does private equity differ from venture capital?
Venture capital invests in young companies with minority stakes and assumes that many will fail. Classic private equity buys control positions in established companies, uses debt as leverage, and executes operational improvement plans. The dispersion of returns is much greater in venture capital than in private equity.
Can a fund's interests be tokenized?
Yes. A fund interest is a financial instrument and can be represented in a blockchain-based register recorded by an ERIR, under Ley 6/2023 and RD 814/2023. Tokenization does not alter the fund's framework or its marketing rules: it changes the medium of the register and reduces operational friction for investors and transfers.
