Establishment of New Funds
The GP could prejudice the interests of LPs in an existing fund by establishing a fund with a similar investment strategy too soon after establishing the existing fund. Doing so can compromise the GP’s ability to implement the existing fund’s investment policy and thus dilute the return to LPs in the existing fund. It can also give rise to conflicts of interest if an investment in a portfolio company is split between different funds.
Fees on prior funds generally reduce when the fund is substantially invested or a new fund is raised.
In general, a new fund should not be established until the existing fund is substantially invested/committed. Specific limits on or triggers when a new fund may be marketed or closed should be set out in the fund documents.
A GP should generally seek to avoid making investments in a portfolio company from more than one fund which it manages. In situations where a GP is investing from more than one fund, it should take into consideration the recommendations set out in the article “LP conflicts of interest”.