The Key Parameters of a Fund Explained

Private market funds come in all shapes and sizes. Before investing, it’s important to understand how such a fund is structured. In this blog, we explain four fundamental parameters that you’ll frequently encounter: fund size, hard cap, vintage, and fund term. These factors apply to all types of funds, including PE funds, funds-of-funds, and feeder funds.

What Is Fund Size?

The fund size refers to the total amount a fund aims to raise from investors during the fundraising phase. This size determines how much capital is available to invest in companies over the life of the fund.

A smaller fund (for example, €100 million) typically invests in SMEs or startups, while larger funds (over €1 billion) focus on bigger buyouts or international growth strategies. The fund size has a direct impact on the risk profile, the type of investments, and the expected returns.

What Does Hard Cap Mean?

The hard cap is the maximum amount a fund is allowed to raise, as defined in the fund documentation. It acts as a strict ceiling: even if investor interest exceeds expectations, the fund may not surpass the hard cap.

The hard cap protects investors from a fund becoming “too large,” which could make it harder to find high-quality investment opportunities. It keeps the fund focused and manageable—thereby increasing the likelihood of strong returns.

What Is a ‘Vintage’?

You might recognize the term “vintage” from the world of wine, where it refers to the year a wine was produced. In the context of a fund, vintage refers to the year in which the fund makes its first investment. This parameter is important for benchmarking: it allows you to compare funds with the same vintage to evaluate performance.

And yes—just like with wine, some years perform better than others, largely due to broader economic conditions. That’s why vintage is also relevant for timing. A fund launched during an economic downturn can benefit from lower entry valuations, while a fund with a vintage in an economic boom may face higher entry prices.

What Is the Term of a Private Equity Fund?

Private equity funds are generally closed-end funds with a fixed term, usually between 8 and 12 years. This term is roughly divided into three phases:

• Investment period (3–5 years): The fund actively seeks and selects portfolio companies.

• Value creation or management phase (3–7 years): The fund actively manages and optimizes the portfolio companies.

• Exit phase (last 2–3 years): The fund sells its stakes—via a sale or IPO—with the goal of distributing realized returns to investors.

For investors, this means a relatively illiquid investment. At the same time, the long horizon allows for structural value creation, which is essential for achieving attractive returns.

Why Are These Parameters Relevant for Investors?

As an investor, you want to understand not only what a fund invests in, but also how the fund is structured. Parameters like fund size, hard cap, vintage, and term provide insights into the fund’s scale, strategy, and market positioning. Together, they form a crucial part of the due diligence process when selecting a suitable private equity fund or fund-of-funds.