Private Equity Buzz Phrase: Dry Close

This week's Private Equity Buzz Phrase is a "dry close." 

Private equity fund agreements typically require that 66% - 75% of an existing fund has been invested before they will allow the General Partners to start raising a fresh fund.  This threshold usually reflects invested money as well as reserves held for follow-on rounds.

But when a private equity firm is on a roll, and the deal pipeline is looking strong, the partners often want to hit the fund-raising trail far sooner than their LPs would prefer.  Say, when the fund is only a third or only half committed.  This is where a "dry close" comes in.

It is increasingly common for the General Partners to close on a new fund-- get the money locked in place-- but delay investing and (importantly) charging management fees until the new fund is allowed to make its first investment.  A "dry close."