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, Worked as an operating partner with a fund and then as CEO of a family office

A PE fund is set-up by seeking Commitments from investors. When the Fund managers (General Partners or GPs) receive their target Commitments, they declare the Fund as Closed.

However, on date of Closing, it is not as if all investors have put in their money in the account designated by the GPs. GPs, their investment and advisory teams look for opportunities to invest and when due process is completed on a target company and they want to actually buyout or buy into the target company, GPs ask investors to remit money in proportion of their commitments. To embellish this point, if an investor has committed $20 Mn in a $1 Billion Fund, and the GPs want to invest $80 Mn in a particular company (8% of fund size), then the investor will be asked to remit $1.6 Mn (8% of their commitment).

This activity of seeking a part of the Commitment is called a Drawdown. Note that Drawdowns also include fees of the fund manager and expenses incurred for the transaction, such as lawyers / accountants etc.

Inherent to the original question might be another – why are these drawdowns in stages, why not take all the money upfront. The answer is that PE funds performance might be affected if they drawdown the cash and there is a lag between the time of drawdown and actual deployment of the money.

In order to help investors plan their funds outflow and for PE fund managers to set appropriate goals for themselves, each fund will provide a drawdown period – e.g. in a total fund life of 10 years, the drawdown period might be 4 years.

Another aspect to consider is that drawdowns will not be sporadic. There is an administrative process and costs involved, so funds will plan a quarterly or half yearly drawdown schedule and combine the investments and expenses for a period before issuing a call for drawdowns.

Finally, if within the drawdown period, if all the money has not been invested for whatever reason, funds may seek a vote to extend the drawdown period or not drawdown the uninvested balance at all.

Thanks for the ask to answer. will be happy to take any follow-ons.

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