Most general partners say yes, according to a recent report about LP-GP relations by IAG UK.
The report, based on interviews with 101 GPs and 128 LPs, found that nearly all of the GPs believed that limited partners had met with them even though they had no intention of investing in their fund.
Another 91 percent of GPs said LPs took part in meetings to get their hands on “sensitive information” to benchmark other funds, and 84 percent said LPs have lied to them about why they didn’t invest in their funds, the report said.
Asked for examples of LP lies, one GP told Buyouts about the time “a very junior fellow told us that the CIO had been called out of town the night before on an urgent matter,” but the GP knew he was lying because moments earlier he had seen the CIO go into the restroom.
Another GP complained: “Everyone says they want co-investments, but I can’t tell you how many times they don’t go through with it and they put the GP in a difficult place when they back out.”
The GP continued: “People call in during a fundraise and visit you and you can tell they’re just there to do due diligence on another fund. If they’re having trouble getting into another fund they’ll come to a GP of similar size to compare it to X. It’s just a fishing expedition.”
A third general partner recounted the time “we gently cut others’ allocation and told [the LP] she had her slot. Two weeks passed and then she left a late night voicemail saying, ‘We have decided PE is an increasingly dangerous area and are not making any new investments.’”
At least one general partner feels like his peers need to take a chill pill. “GPs are a bunch of babies,” declared Devin Mathews, a partner at private equity firm Parker Gale. “They turn down, drag out and totally ignore hundreds of deals a year, and they can’t handle it when an LP gives them the same treatment? Get over it. Get over yourself.”
Some LPs who spoke to Buyouts confessed that they had fibbed, but simply to avoid hard feelings. It isn’t uncommon for GPs to get aggressive and angry when they are turned down, an LP said. “They argue it and they don’t let the point go and then they tell other LPs that you don’t know what you’re talking about. So you realize there is no upside being honest.”
The same LP once told a GP that his investment committee had passed on the fund, but the real reason was that due diligence had uncovered that “one of the partners of the GP had a history of domestic abuse,” the LP said. “We had to wonder how he treated women in the workplace or business overall.”
What can be learned from all this? In any long-term relationship, whether it’s a marriage or a private equity partnership, dishonesty might seem the easiest way to avoid an unpleasant situation, but each little white lie erodes trust. Perhaps it’s time for both LPs and GPs to get on the couch and open up about their true feelings.