I work at a special sits fund that’s currently seeing 2 underperforming vintages. Fund 1 was 9% when target was 15% /top quartile peers are 11-12. Fund 2 is the same number as fund 1. Both funds are posting roughly 3rd quartile return. From fund 1 to 2 the fund was already 30% smaller. What do you guys think happen to fund 3? Any future here?
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Based on the most insightful WSO discussions, the situation you're describing raises significant concerns about the trajectory of your fund. Here are some key points to consider:
Fundraising Challenges: With two underperforming vintages and returns in the 3rd quartile, raising capital for Fund 3 will likely be an uphill battle. Institutional LPs, especially those focused on performance metrics, may hesitate to commit further capital. This is particularly true if Fund 2 was already 30% smaller than Fund 1, signaling a potential loss of confidence from investors.
LP Sentiment: LPs are becoming increasingly cautious, especially in the current environment where underperformance is less tolerated. If the fund's strategy or execution doesn't show clear signs of improvement, LPs may opt to allocate their capital elsewhere.
Market Dynamics: As noted in WSO threads, the market has shifted significantly. Funds that fail to adapt to changing conditions—whether through strategy, deal sourcing, or operational improvements—often struggle to remain competitive. If your fund isn't addressing these shifts, it could face further challenges.
Future of Fund 3: The future of Fund 3 depends on several factors:
Potential Outcomes:
Ultimately, the fund's ability to secure a future hinges on its capacity to address past underperformance, adapt to market realities, and rebuild trust with LPs.
Sources: TPG Growth/Impact insight? Culture/comp/hours?, https://www.wallstreetoasis.com/forum/venture-capital/vc-is-a-laughable-shitshow-change-my-mind?customgpt=1, Distressed Investing: This Time It's Different, Troubled fundraising processes
Better be some good reasons, is the under performance between a few concentrated investments? Struggle to see a story LP’s would accept.
Vintage 1 and 2 both have 1 big bomb and 2-3 smaller underperformed
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