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Glossary · Operations and rules

What is equalization?

In a private fund, equalization is the true-up for investors joining at a later close: they pay as if they had joined at the first, plus interest.

In practice

Equalization is set out in the LPA and handled by the administrator at each subsequent close. The later investor’s payment is usually distributed to earlier investors, and sometimes partly to the fund, rather than kept by the GP. The interest rate varies, often a stated rate or a benchmark plus a spread. Not to be confused with a subscription line, which delays calls, or with fee step-downs.

An example

Round numbers, not a real fund

Say an investor joins a fund at its second close, 6 months after the first. It pays its share of earlier calls and fees, plus interest, so it ends up level with first-close investors.

Why it matters

It is why late investors do not get a free ride on early deals, and why later closes can mean a surprise payment.

A definition, not advice; where usage varies the entry says so. Something wrong? Tell the desk.