What Happens when a PE Fund Closes?

I know this is a very basic question, but I don't think I have a clear picture of what happens when a PE fund closes.

1) Does every PE firm have multiple funds, or do some close shop when the fund closes?

2) What happens to the employees when their fund is closed? Does every employee work on multiple funds?

3) When someone gets a job at a megafund, or middle market firm, does this mean they get a job at a firm with large funds, or a certain fund?

4) Does every employee work on every fund, or at some larger shops, is everyone given a certain (group of) fund(s)?

 

1) No. The number of funds that a PE has depends on the PE shop itself. PE shops will add/fundraise new funds as they establish a strong track record of investing and need more money to invest.

Therefore, a PE shop that has existed for decades will likely have a lot more funds than a recently established PE firm. This is because they are older so they likely have invested all of the money they fundraised, and they have established a strong track record to get investors to commit more money to their firm.

To your point about do they close shop when the fund closes, I am not sure what you mean. I think we are getting confused with closing a new fund and actually closing a fund. What you will typically see in the news is that a PE firm closes a new fund. If they close a new fund, then they have capital commitments put together. Therefore, they would be active to deploy the capital. They have 10 years from when the new fund closes before they have to return all the money they borrowed to invest.

This is much different than closing shop. Closing shop means actually closing the fund down and halting investing. This can be for a variety of reasons - mostly reasons where the PE firm sucked. Every PE firm has a track record that is closely monitored and if your investments suck, then your fund will likely close down. This is a negative event, whereas closing a new fund is a positive and celebrated event.

2) Once a new fund closes, then it is up to the PE firm on how they want to staff up the fund. If you are raising a new fund that is a continuation of the current investment philosophy, then the employees who were staffed on the previous fund will likely work on the new fund as well. This is pretty standard for several traditional PE funds.

Once you get into the bigger investment funds, it can be different. Bigger funds like to diversify their investment philosophy. A good example would be a big PE giant like Blackstone. Blackstone has multiple funds and some funds have different investment philosophies. Blackstone's traditional PE fund will do majority buyouts of companies while Blackstone's growth PE fund will do growth minority investments. If Blackstone raises a new growth fund, then only their growth investors will work on it. The same is true with the buyout funds and employees.

3) I have heard many ways to describe what a megafund is or what a middle-market fund is. Honestly, I don't know the specifics. From what I heard, a megafund is a PE firm who most recently raised a fund that exceeded $5B. A middle-market fund is one that invests in the middle-market which are transactions south of $1B. Lower middle market covers transitions that are smaller, I do not know the cutoff personally.

4) As mentioned in answer 2, it depends on how the fund is structured. If you are at a small PE shop that has one investment philosophy, then every member of the investment team will likely work on every fund that the PE firm has raised - given the fund is still active and not exited. If you are at a large PE firm like Blackstone, then the investment team will be split up between buyout and growth. Buyout investors work only on active buyout funds and growth investors work only on active growth funds.

 
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