I view the life of a private equity fund as having four phases:
- Formation;
- Investment;
- Harvesting; and
- Extension.
The four phases of a fund’s life can be viewed graphically:
Investing in private equity funds is a long-term process. Private equity funds have finite lives, unlike mutual funds. Most private equity funds come to market with a 10 year term with up to two one-year extensions at the discretion of the manager. This suggests a fund term of 10-12 years. However, most funds exist for much longer than 12 years from the initial call of capital to final liquidation. I view the life of a private equity fund as having four phases:
The four phases of a fund’s life can be viewed graphically: To read more, please click on "Read More" to the lower right.
0 Comments
The private equity world has a lot of terminology. In a prior post, I discussed the structure of a private equity fund, and introduced the terms "limited partners" (or "LPs"), the "general partner" ( or "GP") and the "management company." In this post, we'll explore fund "sizes" and a little bit of how investments in private equity funds work.
The "size" of a private equity fund is based on the total amount of money all investors commit to invest in the fund - known as "committed capital." Because a private equity fund invests capital over time, the fund does not need all of the investors' money at the inception of the fund, and so the fund "calls" capital over time. Private equity funds typically have initial terms of 10 years, but most of the new investing occurs during the first several years (usually 3-5 years) of the fund, known as the "investment period." As a result, the fund calls the bulk of capital from the investors during this investment period. Let's use an example. To read more, please click "Read More" to the lower right. I have shopped at Nordstrom for a long time, and so it was with interest that I read this week that the Nordstrom family is considering taking the company private in a buyout transaction.
For investors new to investing in private equity funds, the mechanics of how funds work can be a bit confusing. This post introduces the typical private equity fund structure that's used in the United States - the limited partnership. Basic Limited Partnership Structure In a basic limited partnership, there are several passive investors (known as "Limited Partners" or "LPs") and the manager of the fund, (known as the "General Partner" or "GP"). The diagram below illustrates this basic structure. To read more, please click "Read More" to the right below.
|
About this Blog
This Blog is a collection of thoughts on a variety of topics of interest to me, including: Categories
All
Archives
January 2024
Copyright Notice:
All original works on this site are © Allen J. Latta. All rights reserved. Neither this website nor any portion thereof may be reproduced or used in any manner whatsoever without the express prior written permission of Allen J. Latta. LP Corner® is a registered trademark of Campton Private Equity Advisors. Used with permission. DISCLAIMER: Readers of this Blog are not to construe it as investment, legal, accounting or tax advice, and it is not intended to provide the basis for the evaluation of any investment. Readers should consult with their own investment, legal, accounting, tax and other advisors to the determine the benefits and risks of any investment.
Private equity investments involve significant risks, including the loss of the entire investment. This Blog does not constitute an offer to sell or the solicitation of an offer to buy any security. |