April 14, 2020

How to adapt the conditions in these fundraising circumstances?

It may make sense to adjust the fund size and minimum fund size. An adjustment will influence three important parameters of the fund:

1. the available management fee

2. the coverage of organizational expenses

3. the portfolio construction model and diversification

An adjustment of the fundraising strategy could possibly be considered. One example is the pre-financing of opportunities with a single asset fund or other means of bridging or warehousing. This can also create fund reputation with potential LPs.

It is advisable to create a communication plan for LPs that have already handed in their subscription. Every adjustment or change in strategy must be documented in the LPA and LPs may reconsider their subscription if there are relevant changes. A strong dialogue with LPs is a crucial requirement for continuing excellent relationships.

Also, more creative financing approaches can be observed such as recycling proceeds, including cash previously distributed, reopening closed funds, offering co-investment opportunities to specific investors, and raising top-up funds. It should be examined whether these approaches require approvals from LPs and advice should be sought as to the fund's tax regime.