It is important that fundraising does not continue indefinitely as this may prevent GP from implementing the fund's investment strategy while continuing to commit resources to marketing. There may also be time constraints imposed by certain laws and regulations.
Between the initial closing and the final closing, a GP may make investments on behalf of the Fund. If this period is extended, any portfolio created has a greater potential to change in value, raising questions about fairness in the allocation of gains and losses between the initial and subsequent close investors. In addition, there may be tax consequences from such changes in value.
The fundraising team and GP should ensure that fundraising is completed within a reasonable time after the fund's first close. Market conditions generally dictate that a final close should occur within a certain period of time after the first close, unless this is changed with the consent of the LPs.
Consideration should be given to charging LPs who engage in the Fund after First Close a compensatory interest payment to reflect the costs incurred by LPs who engage at an earlier stage in the fundraising process. This serves to ensure that all LPs are treated as if they had committed at the first closing. Compensation payments are generally credited to existing LPs on a pro rata basis and are not treated as assets of the fund. If the fund makes investments between the first closing and the last closing, consideration should be given to how any gains or losses during that period should be allocated and the information regarding tax consequences should be provided as well.