In this section you will learn more about:

• Objectives of Fund Wind-Up
• Divesting from the Fund’s Investees
• Dealing with the Remaining Assets at the End of the Fund’s Life
• Liquidating the Fund at the End of its Legal Life

Objectives of Fund Wind-Up

Private Equity Funds are closed-ended, meaning that they are intended to wind-down after a number of years specified in the Private Placement Memorandum. The objectives of the wind-up process are to divest from the Fund’s Investees, deal with the remaining assets and the end of the Fund’s life, and liquidate the Fund at the end of its legal life.

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Divesting from the Fund’s Investee Companies

• The Fund’s divestment process from each of its Investees should be planned for and anticipated at the time the investment is made.
• Is your divestment process well underway by three quarters of the way into the Fund’s life? For instance, if your Fund’s life is one of 10 years, have you exited from all or most of the Fund’s Investees by the end of the ninth year? Have you planned to devote the last year of the Fund’s life to the Fund wind-up process? By the end of the Fund’s ninth year, has the Fund paid back most or all of the Investor’s Committed capital, expenses, and preferred return?

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Dealing with the Remaining Assets at the End of the Fund’s Life

• You may wish to select from one of the following two options, if, at the end of the Fund’s life, some investees have yet to be divested: (i) extend the Fund’s life; or (ii) value the Fund’s assets and make in-kind distributions. The Fund’s Investors might also prefer a third option, namely to create another asset management vehicle for the distributed assets, which may be managed by an alternate Fund Manager.
• Points to consider if extending the Fund’s life: (i) This may be done if the remaining assets still have upside potential and could be sold in the near future by the existing Fund Manager; and (ii) You will require the written permission of the Fund’s Investors to extend the Fund’s life. The Fund’s legal agreements should describe the voting procedures for such extensions. Normally, a super-majority of the Investors need to give an approval and for a limited period of time, e.g., 6 – 12 months at one time, for a maximum of 24 months or so in total.
• Points to consider if intending to value the Fund’s remaining assets: (i) Process may be best conducted by third-party professionals acceptable to the Fund’s Advisory Board, or the Fund’s Valuation Committee. One approach to consider is to have the Advisory Board commission two or three third-party valuations; it should also be able to scrutinize and approve the assumptions used in the valuations. The approved valuation would also be used to determine the profit distribution among the Investors and the Fund Manager. (ii) Many Investors prefer to receive cash distributions throughout the life of the Fund through the orderly divestment of the Investees. As a second best option, Investors may accept the distribution of liquid shares.
• If the Fund’s Investors are considering the creation of another asset management vehicle for the distributed assets: 

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Liquidating the Fund at the End of its Legal Life

• Have you ensured that the processes for liquidating the Fund are described in suitable detail in the appropriate legal documents both for orderly wind-up and for liquidation and/or termination prior to the original ending date of the Fund?
• Have you ensured that legal due diligence has been performed at the beginning of the Fund’s life to ensure that the proposed procedures are consistent with the liquidation and termination requirements of the specific jurisdictions where the Fund and the Fund Manager are domiciled. These processes can become complicated when the Fund and the Fund Manager are under different jurisdictions.
• In an orderly wind-up, the Fund (be it a Partnership, a LLC, or a Trust) should cease to exist and its liquidation process start automatically at the end of the Fund’s life, unless at least the super-majority of the Investors (and sometimes the Advisory Board when it adequately represents the Investor interests) agree to extend the term for a specific period of time. Similarly, the Management Agreement with the Fund Manager should automatically terminate when the life of the Fund ends.
• Have you released any escrow accounts that have kept cash or near cash for the Investors from prior distributions after all the accounts are cleared for any remaining liability and after the remaining assets are properly valued and the profit distribution agreed upon?

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