An annex fund is an additional fund vehicle raised next to a flagship fund to invest in opportunities the primary partnership cannot accommodate under its LPA limits.

How it works

Triggers include exhausted main-fund capital, investment-period expiry, concentration limits, or LP mix restrictions. The GP offers existing LPs first rights to commit to the annex under parallel terms—sometimes lower fees to reward loyalty. Annex funds may focus on follow-ons for winners or a single large co-investment.

Unlike an AIV holding one asset for tax reasons, annex funds often behave like mini-funds with their own capital pool and deployment clock.

Why it matters

• Founders: Your lead investor may allocate from Fund IV or Fund IV Annex—confirm capacity and decision-makers.
• Investors: Watch for fee duplication and whether annex performance rolls into GP track record marketing.
• GPs: Transparent annex rationale preserves LP trust; opaque annexes feel like fee grabs.

Common mistake

LPs auto-committing to annex funds without reading differentiated terms. Annex is not always identical to the main LPA copy.

Related ideas

Co-investment funds, continuation vehicles, alternative investment vehicle, and follow-on reserves.