LPs Are on the Ropes
If you’re thinking of raising a fund next year, think again.
The downturn in the public markets has had a significant impact on limited partners, throwing their allocations out of whack, and there is growing anecdotal evidence that both venture and private equity firms are being affected.
I was talking to a VC last night who said that mega LP Alpinvest Partners told him that it has no interest in new funds because “so many great managers can be had for 50 cents on the dollar” on the secondary market. Alpinvest, which has more than $51 billion under management, is currently evaluating about $3 billion worth of secondaries “with a short fuse,” the VC says he was told.
The VC said he was also recently approached by another LP with several billion dollars under management. (He declined to name the investor.) The LP has seen the value of its liquid securities decline from about $2 billion to $1 billion and is now worried that it won’t have the cash to fund its commitments to VC and PE firms, which total about $1.5 billion. To make sure it has cash, the LP is begrudgingly selling stock and pulling money out of hedge funds. It has also reached out to every one of its fund managers to let them know about its situation and ask for their help.
It doesn’t want to have to sell its stakes on the secondary market, so it’s asking funds to transfer parts of its commitments to other LPs, the VC says.
In the case of this particular VC, the LP committed less than $20 million and is looking to reduce its commitment by 50 to 75 percent. It’s such a small commitment, you’d think the LP wouldn’t even make the effort, but the VC says “they’re looking for scraps anywhere they can.”
This VC’s experience is not unique. The Wall Street Journal reported on Tuesday that CalPERS, the nation’s largest public pension fund, “has been unloading stocks and other assets in a falling market to make sure it has enough cash to meet its obligations, including capital calls due to private-equity partners. CalPERS has asked some of its partners to delay their capital calls, according to people familiar with the matter. A CalPERS spokeswoman said CalPERS has been ‘working with its private-equity partners on the timing’ of the capital calls.”
Other LPs are also trying to raise capital. As peHUB was the first to report in mid-October, Harvard has retained Cogent Partners to sell about $1 billion worth of stakes in venture and buyout funds.
And today’s VentureWire reports that, in addition to CalPERS and Harvard, the list of LPs asking their GPs to delay capital calls, looking to sell stakes on the secondary market or sell other assets to raise capital includes the university endowments of Brown University, Columbia University Investment Management Co., Duke University Management Co. and University of Virginia Investment Management Co.
Update: Our friend Matt Marshall has some additional thoughts over at VentureBeat.
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