PE sponsors need to understand the pros and cons of operating a deal-by-deal fund before deciding whether to adopt the model. While certain sponsors may be attracted to a deal-by-deal fund’s streamlined structure – i.e.
, a single-asset fund with simple mechanics – others may be deterred by the continuous fundraising process, its impact on the scope of available investment opportunities and the active role of investors. This three-part series aims to familiarize PE sponsors with the deal-by-deal fund model and aid them in evaluating the viability of the approach. This second article describes unique characteristics of the fundraising process and the general mechanics of establishing a deal-by-deal fund. The first article
outlined the features of deal-by-deal funds and analyzed investor perceptions of the vehicle. The third article
will explore the economics of a deal-by-deal fund (e.g.
, carried interest and broken deal expenses), as well as several approaches to overcoming the issue of deal uncertainty. For more on the co‑investment structure, which has similar features to deal-by-deal funds, see “Investment Vehicles, Investor Rights and Restrictive Covenants in PE Co‑Investments (Part One of Two)
” (Jun. 18, 2019); and “Sadis & Goldberg Seminar Highlights the Ample Fundraising and Co‑Investment Opportunities in the Private Equity Industry, Along With Attendant Deal Flow and Fee Structure Issues
” (Dec. 8, 2016).