Glossary · Fundraising

What is an anchor investor?

An anchor investor is a large early backer that commits a big amount to a new fund, helping it get started and often receiving better terms for doing so.

In practice

Anchor terms are usually negotiated before the first close and written into the LPA or a side letter. Common perks include reduced fees, a share of carried interest or management company economics, co-investment rights, and a seat on the LPAC. Anchors are typical in first-time and specialized strategies. The term is sometimes confused with a seed investor, who often takes a stake in the manager.

An example

Round numbers, not a real fund

Say a new credit fund targets $1 billion. A pension plan commits $200 million up front, which helps persuade other investors to join.

Why it matters

An anchor can make a first-time fund possible, and its name helps persuade others to join.

In the news

Related terms

First closeA first close is the first time a fund accepts investors’ commitments and gets going, even though it keeps raising money toward its full target.
Side letterA side letter is a separate agreement between a manager and one investor that gives that investor terms beyond the fund’s main documents, such as lower fees or extra reporting.
GP stakeA GP stake is a minority ownership in an asset manager itself, giving the investor a share of the manager’s management fees and often of its carried interest.
Management feeThe management fee is the annual charge investors pay a manager to run a fund, often 1% to 2% of committed capital during the investment period.
Co-investmentCo-investment is when investors put money directly into a deal alongside a fund, usually with lower or no fees and no carried interest.

The terms, in the news each morning.

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