Fund Extension
Private Equity glossary · Private Equity Fundamentals
Definition
Additional period beyond the fund's nominal 10-year term, granted to allow the GP to complete exits on remaining portfolio companies. Standard LPA provides for two 1-year extensions at the GP's discretion; further extensions typically require LPAC or supermajority LP consent. Management fees during extensions step down further. If assets cannot be liquidated by end of extended life, the GP may seek further LP consent, transfer remaining assets to a continuation vehicle (Ch. 17), or distribute in-kind securities. Funds that drift into perpetual extensions with little exit activity become 'zombie funds.'
Fund Extension in plain English
A private equity fund is set up like a project with a deadline — usually promising to buy companies, improve them, sell them, and hand all the money back to its investors within about 10 years. But selling a business for a good price can't always be rushed, so the fund's rulebook lets the managers tack on extra time, typically two one-year 'extensions,' to finish selling off the last few holdings. During this overtime the managers charge lower fees (a reward for wrapping up). If even the extra years aren't enough and they STILL can't sell — with little happening and investors' money stuck — the fund earns the grim nickname 'zombie fund': technically alive, going nowhere, quietly collecting fees on assets it can't unload.
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