- Fundamentals
- Posts
- 🛠️ Investment Fund Key Terms, Part 7
🎉 Happy Friday, funds family!
Today, we have Part 7 in our many-part series walking through each term in an investment fund term sheet in detail.
Last week, we discussed 🛠️ Fund Term. Today, we'll learn about the Fundraising Period.
But first..
/ SELF PROMOTION
If you’re a sponsor (GP) raising an investment fund or syndication in private equity, private credit, real estate, or venture capital, we may be a good fit for you. We also represent limited partners (LPs) investing in funds and syndications.
Thanks for reading. Now, let’s jump into the article 😃
In most closed-end funds, the GP has a fixed window to raise capital. The fund begins operations on the “initial closing date” – the date the first LPs are admitted to the fund. 📆
Then, at some point in the future, the fund holds the “final closing date” – the date that fundraising ends.
A standard fundraising period might look like this:
“The initial closing of the sale of limited partnership interests in the Fund (the “Initial Closing Date”) will be held on January 1, 2026. Additional Commitments may be accepted and subsequent closings may be held at the discretion of the General Partner for a 12-month period following the Initial Closing Date, subject to an extension of up to 6 months at the discretion of the General Partner or such later date as approved by the LPAC or a majority in interest of Limited Partners (the “Final Closing Date”).”
➡️ How long is the fundraising period?
In most closed-end funds, the fundraising term is around 12 months. In addition, the GP can usually extend the fundraising period in its discretion for around 6 months.
Recently, we’ve seen some GPs try to push the extension period to 12 months to give them more wiggle room.
In addition to the GP extensions, the LPs (either as a full group or via the Limited Partner Advisory Committee) can usually vote to extend the fundraising window.
We saw a decent amount of funds do this in 2022-2023, as fundraising became tight following the historic Fed interest rate hikes.
➡️ What happens after the fundraising period ends?
Once the fundraising period ends, the fund can no longer accept new investors. The fund focuses on making, monitoring, and selling investments.
Note that the fund does typically make investments during the fundraising period. It’s a busy time, with the GP often investing and fundraising simultaneously. 😅
➡️ What happens to LPs who join after the initial closing date?
In short, LPs joining late will have to fund a capital call such that all LPs have funded the same portion of their commitments.
This is an equalization payment. In addition, many fund agreements require late LPs to pay earlier LPs interest on the equalization payments (often at Prime +2).
This interest charge is to compensate the earlier LPs for the time value of money and the fact that the early LPs took more risk by investing with less information when the fund was newly formed.
For more details, check out this article: 🛠️ What happens if someone joins an investment fund late?
➡️ What about open-ended funds?
In most open-ended funds, there is no fundraising period. The fund can typically accept new investors forever, usually at pre-determined intervals such as monthly or quarterly.
🗓️ Next up in Part 8, we’ll discuss the investment period.
Thanks for reading, everyone.
Have a great weekend! 🙌
/ JURY TRIAL
How did you like today's post? |
Have you enjoyed this newsletter? Don’t forget 🔗 to share it with your GP, Co-GP, LPs, or anyone else you think might find it valuable!
You can also propose a topic that you would like us to cover! Just reply to this email or submit your suggestions 🔗 here.
⚠️ Note: This newsletter is for informational purposes only and nothing should be considered legal advice. For that, hire a lawyer! I am a lawyer, but not your lawyer (unless I actually am your lawyer because you’ve signed an engagement letter and we’re working together). This newsletter may be considered attorney advertising.
Reply