How Much Must Managers ‘Deploy' From An Existing Fund Before Starting A Successor?

Most fund managers operate multiple funds, and they look to launch successor funds before they have "deployed" the full value committed to an existing fund given the need to reserve a percentage of the fund's commitments for budgeted capitalization of existing investments, future follow-ons, fees, and expenses. In contrast, investors want reassurance that the best investment opportunities will be offered to the existing fund first, and will therefore require fund managers to deploy a certain percentage of an existing fund's commitments before launching a successor fund. This also helps ensure that executives are focused on the existing fund until it is appropriately deployed.

How much are they required to deploy? The amount varies, but analysis of Goodwin's Terms Database for Private Investment Funds indicates that more than 80% of funds have a target of 70% to 75% of commitments. The analysis is based on data from 91 funds that closed in the past 18 months.