A parallel fund is a separate investment vehicle that invests alongside the main fund on the same terms, in the same deals, at the same time, and in the same proportions. Parallel funds are created to accommodate investors who cannot invest in the main fund due to tax, regulatory, or structural reasons.
Why It Matters
Some investors face adverse tax consequences if they invest directly in a U.S. limited partnership. Tax-exempt institutions, non-U.S. investors, and ERISA plans each have specific structural requirements. A parallel fund structured to address those concerns lets you accept their capital without complicating the main fund or creating tax issues for other LPs.
Key Details
- Invests pari passu (on equal footing) with the main fund in every deal.
- The GP manages both funds identically, with the same investment decisions applied to each.
- Each parallel fund requires its own set of fund documents and financial statements.
- Additional annual costs typically run $30,000 to $50,000 or more per parallel fund.
- Generally only justified at fund sizes above $100 million due to the added cost and complexity.
- Each parallel fund is a separate issuer and requires its own Form D filing with the SEC.
For more on when and how to use parallel structures, see Parallel Funds and Feeders.
Capital Company handles parallel fund accounting and reporting as part of fund administration.
This content is for informational purposes only and does not constitute legal, tax, or compliance advice. Consult qualified counsel for guidance specific to your situation.