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BLOG. 2 min read

Seven Steps to Winding Down a Fund

In our "Plan Ahead for a Smoothly Executed Wind Down" blog, we explored various reasons for fund managers to wind down a fund—whether it’s planned or responding to weak market and operating challenges.

There are many factors fund managers must consider as they create a wind-down plan. Requirements may vary depending on jurisdiction, fund type, structure and governing documents, but some standard principles apply to most scenarios.

  • Professional advice – There may be regulatory differences regarding whether certain experts should be in-house or external, but it is important to understand the operational, legal and tax ramifications of the decision to wind down and designate who will be responsible for each part of the process.
  • Investor communication and coordination – Failure to communicate effectively and transparently with investors when a fund liquidation is planned or under consideration may result in exposure to legal action.
  • Legal compliance and other requirements – Regulatory requirements may include a mandatory audit, plan approval or de-registering the fund with the appropriate authorities.
  • Financial record-keeping – Regular record-keeping and financial statements must be maintained during the wind-down period. Fund managers must also make arrangements for post-liquidation record-keeping and any other audits or records required by a jurisdiction.
  • Asset liquidation – To ensure investors get the maximum value for their participation in the fund while minimizing negative impacts, test various scenarios before deciding on a liquidation strategy.
  • Distribution to investors – All investors should receive their proportional share based on their level of participation, with proportional deductions for fees or expenses as outlined in the fund’s constitutional documents.
  • Dissolving the legal entity – After regulatory requirements are met, assets are liquidated and investors have received distributions, the fund’s legal entity must be dissolved, usually by filing formal closing documentation with the appropriate authorities.

A fund administrator should know what is involved in a wind-down and be able to support you with investor communications, financial record-keeping and reporting, timely regulatory filings, distribution calculations, disbursement of proceeds, dissolution documentation and other operational support.

To learn more about how to create a wind-down strategy that will leave you ready to start a new chapter with new opportunities, download our "On to the Next Chapter: What You Need to Know When It's Time to Wind Down a Fund" whitepaper.

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