First close
The first date on which a fund accepts commitments and can begin investing.
Managers set a minimum for the first close, and later investors typically pay a share of fees and interest as if they had joined at the start, which is called equalisation. Management fees usually start from the first close.
Common first close thresholds are 30 to 50 percent of target size, set high enough that the fund can build a real portfolio if later closes disappoint. Investors in the first close often get better terms, such as a fee discount, to reward them for committing early.
Many LPs will not commit until others have, so the first close is often the hardest milestone. Anchors, a strong GP commitment and LPs who have already done diligence are what typically get a fund there.
Worked example
A GP targets a $75M fund and sets a $30M minimum for the first close. After seven months of meetings, an anchor commits $15M, two family offices $5M each, and 12 individuals $6M between them, a total of $31M. The fund holds its first close, starts charging fees and makes its first two investments.
Common questions about first close
What percentage of a fund is usually raised at first close?
Commonly 30 to 50 percent of the target. Some funds close lower to start investing, but a small first close can make later investors cautious.
Can a fund invest before its final close?
Yes. Once the first close is held, the fund can call capital and invest. Later investors then pay equalisation so they share in those early investments on equal terms.