Do you know when your fund is going to blow up?
Given all the heightened scrutiny around PE and PC these days... interested on getting datapoints/stories from what it's like when you know shit is going to hit the fan internally. To be clear not calling out any funds in particular, but these things are happening. What is the commentary from leadership, do people just start interviewing like crazy, etc? Trying to imagine going back to my monitor and focusing on work when I'm being bombarded with headlines that X% of my LPs just voluntarily redeemed out of my fund....
How
It’s extremely rare for a PE or PC fund to “blow up overnight”. It’s a slow process given there will be some good in the portfolio that will have to be sold down in an orderly fashion over some time. Also, LPs don’t really redeem their capital like they may in a hedge fund given private equity / credit are locked up, draw down style investment vehicles
It’s probably not hard for IPs to figure it out when things are truly bad but generally these things are more gray than clearly black and white. The GPs aren’t going to be broadcasting it because they are salespeople and marketers ultimately who will continue to try to save the fund. The senior and more talented folk will figure it out first when they start doing the carry math. They start recruiting over time - some are quicker and others may take time to evaluate the risk / reward (you can’t just immediately leave plus you still likely have good fixed comp and sometimes staying through chaos can accelerate careers). You may see layoffs after a certain point also or reduced bonuses, but ultimately you need to have your finger on the pulse regarding all portcos , portfolio marks and fundraising, which requires you to be curious and speak to the folks you trust and believe are smart at the firm
The most obvious sign will be an extended fundraising timeline but the internal team should have a good sense before the LPs do. You have access to all the key financial info to do a back-of-the-envelope on whether a fund will be able to hit a hurdle of 2x MOIC. It's easy to run some scenarios based on the LTM financials and potential exit multiples for each deal. Also take a look at the performance of the fund prior to your current fund. That's a more mature portfolio and you should have more visibility into overall fund performance with exits etc. A somewhat conservative but fair view would be to take LTM financials x entry multiple (maybe lower if the business hasn't grown or you overpaid at entry) for everything that's unrealized. If you do that and you're seeing an overall MOIC below 2x, you should start to worry. Also if your fund has more than one investment that was a 0 or close to a 0.
How would you decide if previous fund is doing well? How is low teens net IRR?
Nothing terrible like negative IRR or single digits but not necessarily hitting 15% for multiple funds
I'd focus on MOIC rather than IRR. Unless there are a lot of early exits, IRR moves down meaningfully as the fund matures.
Was at one of those funds featured on the zombie fund article. Yes, fundraising was slow, but partners assured us it was market driven and that we’d come short of our target but not far off.
I really knew it was over when they stopped paying for our lunch.
one-ply toilet paper?
I think this fits with what you’re describing about things deteriorating slowly rather than breaking all at once.
One second-order effect I’ve seen is that as uncertainty drags on, momentum slips and deal quality starts to fade. The best processes clear early, and what’s left requires more justification. It’s rarely explicit, but markets seem to pick up on it faster than people expect.
Over time, you end up spending more energy explaining why you’re still competitive rather than simply being competitive, even though nothing has formally “broken” yet.
Guys I’m at Carlyle and they cut both the consumer and the tech teams and all the seniors are leaving and our returns are below most high yield savings accounts, is my fund cooked?
you'll be fine until they stop paying for lunch
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