The Initial Closing of a fund represents the date the first Limited Partners join the fund by signing the subscription agreement. This usually represents the beginning of activity in the fund and is the date from which the management fees start accruing.
After the Initial Closing, the fund may have Additional Closings in which more investors join the fund. The new investors into the fund will be treated as if they came in on the Initial Closing – this means that they will have the same rights to the assets of the fund as investors that came in first.
Because earlier investors took more risk and had their capital locked in for longer, it is common practice that any new investors will pay the early investors some interest on the early capital contributions (similar to the way a loan works).
Investors that come in later typically also have their management fee backdated as if they came in on the Initial Closing – this is called the management fee catch-up. They may also be asked to pay some interest to the General Partner or Investment Manager on the late payment.