Investing in private equity funds is a long-term process. Private equity funds have finite lives, unlike mutual funds. Most private equity funds come to market with a 10 year term with up to two one-year extensions at the discretion of the manager. This suggests a fund term of 10-12 years. However, most funds exist for much longer than 12 years from the initial call of capital to final liquidation.
I view the life of a private equity fund as having four phases:
- Formation;
- Investment;
- Harvesting; and
- Extension.
The four phases of a fund’s life can be viewed graphically:
