A couple months ago, we reported that turnaround firm KPS Capital Partners had raised $800 million in “top-off” capital for a $1.2 billion third fund that originally closed in 2007. The new effort was oversubscribed, even though KPS retained its 2007-vintage 25% carried interest structure and 50/50 fee split.
Why would LPs pile back into a fund with such gaudy terms? Doesn’t this contradict what I wrote yesterday about Greylock’s success partially deriving from generous LP treatment? I would have thought so, until reading an item in this morning’s Private Equity Insider (which peHUB has since confirmed independently):
Alameda County Employees (not an existing Fund III investor) approved up to $30 million in commitments for the top-off fund, but ultimately got shut out because of existing LP demand. Alameda was displeased, and asked KPS to reimburse the pension system for legal costs related to due diligence. KPS agreed to do so, even though it had no contractual obligation to do so.
Stories like these have staying power, and could help make KPS even more popular next time around…