Partech Manages Currency Risk

Partech International is nearing a $300 million final close for its fifth VC fund, Alex Haislip reports in the latest issue of PE Week (sub req.). It’s been a long slog, in part because the firm’s European LPs want to be shielded from the effects of the falling U.S. dollar. Conversely, U.S. LPs don’t want their contributions devalued vis-a-vis their European counterparts.

The solution has been to treat each group of LPs as if they have their own sub-fund. The commitments are then denominated in their preferred currency, and converted at the time of investment (as opposed to at the time of commitment).

“We had to make sure that the U.S. investors were not favored or disfavored in terms of gains,” Partech managing partner Vincent Worms told PE Week.

Partech is not alone in dealing with this issue, and I’d expect most every firm to face it come their next round of fundraising. After all, even the most optimistic projections have the dollar sitting flat against the euro, while the majority seem to anticipate additional decline. At the same time, non-U.S. institutions are increasing their commitments to private equity. Curious to see if an industry standard response develops…