PE firm, latest fund has negative IRR
Hi all,
I've been looking into PE associate opps and came across a fund thats pretty small (~4bn AUM) and invests primarily in TMT. their first couple of funds performed super well (>30% realized IRR) but I looked up their latest fund (closed December 2019, roughly $1bn) and multiple sources say its currently marked at a -10% IRR/0.9x MOIC as of 9/30/22 (note that only 75% of the fund was invested as of 9/30). They are currently fundraising for their 5th fund but no clue how that's going.
I'm wondering how bad this is and what it means for the associate experience / future fundraising. If seniors are stressed about losing all their money, would this mean running at countless opportunities with hope to recoup their $, more hands-on portco management to try to rectify the situation, etc. Trying to understand how bad this is and if anyone maybe has firsthand experience being at a firm where the latest fund was in the gutter. Thanks for the insight in advance.
How much insight do you have into the investments made by the latest fund? And do you know that the negative performance is driven by the investments performing poorly?
It's not uncommon for the most recent fund to have negative performance due to fee drag (i.e. all the portfolio companies are held at cost, but the fund has been charging management fees the fund is marked below cost overall). But if you can get a copy of the latest quarterly report that should give you a better sense of what exactly is going on.
If it is caused by negative performance - it would likely come down to the dynamic between the partners and if there are differences between the economics in the most recent fund vs the old funds that have performed well.
Thank you for the detailed response, +1 SB
The company has made 6 investments from this fund so far, 2 in 2020, 2 in 2021, and 2 in early 2022. aside from that I don’t have specifics on the companies themselves.
there were some LP materials (an LP of the firm) published that showed the median returns from the NEPC North American buyout benchmark was 24% / 1.36x during the same time frame. Wouldn’t that indicate something bigger than just fee drag?
Those fund benchmarks often aren't very meaningful in the early years (i.e. less than 4-5 years), because they depend a lot on the timing of the investments. For example, some of the funds that are included in the benchmark may have deployed more of their fund in 2019 and 2020, and by now those portfolio companies may have been marked up already, but it's not necessarily a good indicator of how the fund will perform over the longer term (which is what matters for fundraising and the partners realizing carry).
How do you find IRR of a fund?
Pitchbook
Is this ZMC? Sounds like their marks.
Yes lol, do you have any additional info on them by any chance? Seems you are familiar with the group and would be extremely helpful!
Lol sounds like Siris - do not join
What’s the deal with them? Always hear their name thrown around negatively
Fund is performing terribly. Will be tough fundraising from here
Where were you able to find fund returns? Would be really helpful as I'm interviewing with a fund and would love to see performance data.
Pitchbook, Preqin, Stepstone, Cambridge Associates or similar databases, or some pensions publish their returns.
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