TPG’s Move Was Different Than Permira’s, And When Will Apollo Follow Suit?

“Giving money back is something VCs did after the bubble, but PE firms will never do it.”

That’s what I was told six months ago when I asked GPs struggling in the fundraising market if they’d ever decide, “Maaaaybe we don’t need that much money in this environment.”

Then firms like Blackstone and Madison Dearborn lowered their targets. Then rumors of LPs missing their capital calls spread like wildfire. And now we have the next logical step: Firms allowing LPs to scale back their commitments. Yesterday the Wall Street Journal reported that TPG had followed in the footsteps of Permira, allowing its investors to cut their commitments to the $20 billion vehicle by as much as 10%, or $2 billion.

TPG is the second firm to allow such a move, but the Permira (the first) move looks a bit different and here’s why: TPG is much more benevolent than Permira.

The British buyout firm decided to allow reduced commitments to accommodate for basically one large LP, SVG Financial. SVG ran into trouble because it’s a BDC, meaning it’s available capital has been obliterated by the volatile stock market this year. The firm made the terms of cutting back so stringent and unfavorable to LPs that almost none have opted to do it. Meaning, the LPs of Permira’s fund will have to pay fees on their entire commitment, regardless of whether or not its being put to work.

Comparatively, TPG, looks like a saint. The firm actually reduced its management fees by around a tenth, regardless of reduced commitments. The firm also agreed to not call down more than 30% of an investor’s total commitment next year, meaning TPG will spend less than $6 billion next year (that could be helpful info if the auction market ever returns, though I highly, highly doubt it).

But I applaud the effort and I’m sure LPs see it as a strong first step in their direction. They will hold the cards for awhile now, so GPs may as well get used to that.

My question is, when is Apollo going to do this? The firm has had about as rough of a year as TPG. TPG lost money on WaMu, Apollo lost money on Huntsman/Hexion and Linens N’ Things. They invested together, and later wrote down together, the disaster that is Harrah’s. Apollo’s fund is only slightly smaller than TPG’s at $15 billion. If the firm doesn’t allow commitment reductions, I’d call it bold, and a show of ill will to unhappy, cash-strapped investors.

TPG Will Let Clients Trim Cash Pledges by Up to 10%