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Stage 6 of 6

Running the fund after the first close

After the first close the work becomes a calendar: calls and distributions as deals happen, statements every quarter, an audit and tax returns every year, and a compliance programme that runs all the time.

Typical time: Ongoing, for the life of the fund, often ten years or more.

The regular work

Capital calls and distributions follow the LPA’s notice periods and the waterfall. Each quarter, investors expect a capital account statement and a report on the portfolio; many institutional investors ask for the ILPA reporting templates. Valuations follow a written valuation policy, usually at fair value.

Each year, the auditor audits the financial statements. Registered advisers relying on audited statements under the SEC custody rule generally deliver them to investors within 120 days of the fiscal year end (180 days for a fund of funds). The tax adviser prepares the fund’s partnership return and each investor’s K-1; partnership returns are commonly extended, and investors ask early when to expect their K-1s.

Compliance and governance

Keep the compliance manual and code of ethics in use, not on a shelf: personal trading, gifts and entertainment, marketing review, books and records. Hold the advisory committee meetings the LPA provides for, and record its approvals of conflicts.

Plan for the next fund early. Investors in a second fund will look at how the first one was run: how well it reported, how it handled problems, and how its returns compare.

Checklist: running the fund

  • Write a valuation policyHow and when each kind of asset is valued.
  • Set the reporting calendarQuarterly statements and reports; the annual audit; K-1s.
  • Agree the audit timetableWho supplies what, and by when, after year end.
  • Agree the tax timetableReturns, extensions and the K-1 date investors are told.
  • Run the compliance calendarAnnual review, Form ADV update, code of ethics certifications.
  • Hold advisory committee meetingsAs the LPA provides, with minutes.
  • Keep a record of every side letter obligationAnd check them before each report and notice.

Terms worth knowing: Capital call, Distribution waterfall, Fair value, NAV, LPAC, Schedule K-1, Form PF, DPI, TVPI.

Talk to someone who has done it

Tell us what you are launching and what you need. We will introduce you to lawyers, auditors, tax advisers or a manager who has raised a first fund. Free, and we take no referral fees from anyone.

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This guide explains how fund launches commonly work. It is not legal, tax or investment advice: rules differ by fund, investor and place, and change. Speak to your own lawyers and tax advisers before you act.