10.1.25: What Happens When the Fund Must Wind Up?

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Abstract

The typical life cycle of a pooled investment vehicle is 10 to 12 years. When the time comes for the partnership to liquidate and distribute its assets to its limited partners, it is often the case that illiquid investments, which can only be sold at discount from perceived value, sit in the portfolio of the PIV. These securities are often anathema to the large pension funds in their capacity as limited partners in the PIV. They are nuisances, because they are difficult to value in the pension fund's portfolio and even more difficult to manage. Accordingly, a number of alternatives have been floated and adopted.[1] On occasion, the investment managers will establish a second partnership or a liquidating trust, tax transparent under the Internal Revenue Code, and manage the residue investments until they can be intelligently harvested. Under those circumstances, the managers will generally accept a reduced...