I'm looking at an MM Fund that is currently in the market to raise its next fund but the current fund is only 50% invested. Is that normal? I feel like usually by the time you get to the final close, you will have done multiple investments out of the new fund, but I don't know how you could do that if your previous fund is only 50% invested.
How do LPs view something like this?
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Usually there are strict thresholds the prior fund has to reach before official marketing can be launched on the new fund. Market standard is like 70% deployed. Maybe this firm is in talks with investors about the next fund but not officially out there? LPs would generally not like a situation where the prior fund is only half invested and the firm is raising the next fund -- question is, where is your focus: On making the best investments out of the fund I committed to, or putting most of your energy in raising the next fund?
Other alternative here is there is an imminent deal coming in the latest fund that pushes them to 70%+ invested.
They are starting earlier because upcoming fundraising cycle is going to be super though - as the above poster said, they are just pre wiring LPs etc. to hit the ground running once they reached 70% deployed.
I'm OP. Just to clarify, its a live fundraise with press release confirming launch.
I guess I should assume that LPs are cool with this / their fund docs allow for this, otherwise they wouldn't be able to do it.
The point about an imminent deal that pushes above 70% is definitely possible.
50% deployed and raising, unless they are at the tail end of the investment period, generally would be strange for most MMs. Most likely was opportunistic / had anchor LPs ask for it / longer fundraising cycle and saw an opportunity to seed it before first close to help with fundraise - myriad of factors could be in play, track record strong to support it / marketing story around themes that are actionable now / new deal partners / etc etc etc
So while weird, I personally wouldn't think red flag without verifying above. I wouldn't think upcoming cap call to get over the fund docs threshold or LPAC approval would have been enough to launch fundraise early, as that could be used for the marketing story, so that's why I'd assume there's other factors like the above in play. You'd need to see DPI / if there was LPAC pushback / restrictions on cross funding / duplicate manage fees /vintage of current and quartile compared to similar sector exposure to really know what's going on
If they have strong relationships with LPs, I'd disagree with the focus questions unless strategy is changing materially. Yes they will diligence that, but LPs also are operating on deployment timelines. Theoretically the question would be less on focus and more on trust with that fund size (ie. equity check size) and if they have a pipeline/deal team/experience to bring that to fruition. Now if they didn't have experience at that fund size (including the overlapping outstanding unfunded) and strategy would change to minority type / etc, then focus would be called into question
Every firm fundraises when they are actively deploying / have a mandate, so unless they are going after a significant upsizing that's completely normal. Arguable in MM, going after larger fund size with internal placement agents / PFG bankers is easier with potentially less meetings than without that support. Not to mention favorable terms would alleviate most LP concerns. They could have LPs who run a slower IC process and hence need more time so launching now
So as you can see, this is a chess game and there's a lot of future moves potentially dictating the move to launch now. You'd have to find out if your seniors are playing the game as described above or worried they have bad performance and want to raise now before they have to put real valuations when they send back distributions on asset exit rather than the make believe NAV valuations (ie. fundraise after would be a down fund)
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