Fund life
Factual definition
Fund life is the period an investment fund is intended to remain in existence under its documents. A closed-end buyout fund may have a roughly ten-year initial term, but its investment period and each investment’s holding period are different clocks.
Investment period, fund term and holding period
Hypothetical: a fund has an investment period from year 0 to year 5 and an initial legal term from year 0 to year 10. Exits can occur during the investment period, and permitted follow-on investments can occur later.
Any extensions and approval rights depend on the documents.
Scroll horizontally to read all columns.
| Clock | Start | End or qualification |
|---|---|---|
| Investment period | Year 0 | Year 5 |
| Initial fund term | Year 0 | Year 10 |
| Individual investment hold | Acquisition date | Exit date; need not match either period |
| Extensions | If permitted | Process and approvals set by documents |
Fit the proposed holding period inside the fund calendar
Hypothetical late investment. A fund’s initial term ends at year ten, and its investment period ends at year five.
A permitted acquisition closes at year 4.5 with a six-year operating plan before exit. Its expected exit at year 10.5 falls six months beyond the initial term.
Being allowed to buy it does not establish enough time to hold it.
Assume the documents allow a one-year extension only after a specified investor approval. The forecast can show that extension as a scenario, but approval is not an accomplished fact.
Test an earlier sale, a slower operating plan and the extension process before making the investment decision.
An illustrative LPA treats term and winding up separately from investment permissions. Read the actual start date, extension conditions and liquidation provisions; the phrase “ten-year fund” is insufficient to date the last permissible investment or the final distribution.
Where Fund life fits
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