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Fund Lifecycle: Formation

Fund formation is the period before a fund launches, when a private equity firm goes through the steps necessary to create and initialise the limited partnership structure that will serve as the private equity fund. Once the structure is formed (at the end of the formation stage), the PE firm will become the fund’s General Partner and the investors will become the fund’s Limited Partners.

The formation stage can take anywhere from a few years to a decade, depending on the experience level of the fund and a myriad of other factors. For seasoned private equity firms, this is a rolling process meaning that the plans for forming the next fund are in development relatively early on in the previous fund’s life.

The critical events that occur during the formation stage of a PE fund include the following: 

1. Strategy development (GP): The PE firm (future General Partner) develops a clear strategy that will guide the management of the fund. For a new fund, this strategy might have been discussed for years before the launch. For more experienced firms - where this might be their seventh or seventeenth fund in the same strategy - it can be a simple refinement of what has worked previously. That said, firms will often refresh their strategy in response to changing market conditions and opportunities.

2. Offering materials (GP): The PE firm produces all of the materials that are legally required to set up the limited partnership structure and comply with all industry laws and regulations, in addition to those prepared for potential investors. These materials detail all necessary information about the fund and will include the following three documents, presented in decreasing level of detail:

  • Private Placement Memorandum (“PPM”). This is the central document that contains everything about the PE fund, the intended investments and the limited partnership entity. It contains all legally-required elements and serves as essential reading for investors.


A standard private equity PPM will typically include the following sections:

  1. Executive summary
  2. Investment performance 
  3. Summary of Key Fund Terms
  4. General Partner Overview
  5. Investment Team and other involved parties
  6. Investment Strategy
  7. Fees and expenses
  8. Subscription, redemption, and distribution info.
  9. Appendices


  • Due Diligence Questionnaire. Investors need to carry out due diligence on private investments. Since General Partners are usually asked to fill out a questionnaire for investors, they will usually produce their own in advance to pre-empt requests. They follow a similar structure to the PPM, but are usually around 100 pages, targeted specifically at potential investors.
  • Marketing Presentation. These are heavily distilled versions of the PPM, highlighting each of the sections mentioned above and providing the rationale for investors to commit capital. Since they are designed to garner interest rather than provide detailed information, they usually run about 30-50 slides in length.

3. Fundraising (GP & LP): This is where the General Partner announces that the fund is launching and issues an initial capital call to investors to commit capital to the fund. This activity can span anywhere from a matter of months (for seasoned firms with existing relationships and a proven track record) to several years (for new firms that are less established).

Since there are numerous investors in a given fund, it is a stage during which communications go back and forth between the General Partner and prospective Limited Partners, with questions being asked and discussions being held over fund documents.

  • Investor due diligence (LP): Investors carry out their own due diligence on private equity managers. This is effectively the other side of the back-and-forth described above, but it is worth calling it out here to stress how important it is for any investor.
  • Development of deal pipeline (GP and companies): During - and often before - fundraising, the General Partner will be looking into prospective companies to invest in once the fund launches. If deals are already made before the fund has finished raising capital, the investments are “warehoused” and are often used to help sell the fund to investors.
  • Initial closing (GP and LP): Fundraising ends on the “initial closing” date (specified in the offering materials) at which point the “initial closing period” begins. This is the period during which investors are admitted to the fund as Limited Partners prior to the investment period. Most funds accept new Limited Partners after the initial closing date (often up to 12 months), technically overlapping the fundraising period with the investment period.

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Important notice: This content is for informational purposes only. Moonfare does not provide investment advice. You should not construe any information or other material provided as legal, tax, investment, financial, or other advice. If you are unsure about anything, you should seek financial advice from an authorised advisor. Past performance is not a reliable guide to future returns. Don’t invest unless you’re prepared to lose all the money you invest. Private equity is a high-risk investment and you are unlikely to be protected if something goes wrong. Subject to eligibility. Please see


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