What happens when a PE fund reaches its investment period end?
A core Private Equity interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
After typically 5 years, the fund can no longer make new investments (only follow-on investments in existing portfolio companies). Management fees often step down from 2% of commitments to 1.5-2% of invested capital. The fund shifts to harvest mode: focus on improving and exiting portfolio companies. The GP can raise a successor fund, usually after deploying 60-75% of the current fund.
WHAT INTERVIEWERS LISTEN FOR
- ✓No new investments allowed
- ✓Management fees step down
- ✓Shift to harvest mode
- ✓GP raises successor fund
COMMON MISTAKES
- ✗Thinks fund can still invest freely
- ✗Ignores fee reduction
- ✗Confuses with fund liquidation
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