The rationale that is usually given to LPs to make them go along is that the time to exit is not right, but the one fund that currently owns the interest is getting long in the tooth, so they need to move the interest to the newer vintage year fund. They spin it as, we thought it was a good investment before, and we think it is an even better investment now, so we want to hold onto it. But we still need to wind down the old fund.

It's a nightmare from a valuation standpoint, because while many LPs may well be invested in both funds, making it a wash, some are not. The LPs that invest in both funds sign a check to fund the investment in the new fund, and then get the money back as the older vintage is winding down. The investment just essentially gets rolled forward. The investors who are only in the new fund are cashing out the previous investors, so this is much more of a concern. But they are new and still usually riding the feeling of wow, they let me invest in this awesome fund. PE firms are really good at creating an aura of exclusivity and luxury.

A rolling loan gathers no loss. So long as the music keeps playing, valuations can be whatever number you can get your auditor to agree to. Nice dinners and event tickets for your audit partner can help with that.