Possible for declining fund to turnaround?
We've spent decent time talking about turnaround scenarios for companies but is it really possible for a declining fund to turnaround? A lot of JAMMBOs have faced challenges recently and legacy names raised down funds and have turnover at the MD level.
Those are still great legacy names with talent. Is it possible for those funds to outperform and eventually come back to the right route? Some firms have decided to focus more on core areas and thought more of exits (e.g. Am Sec). With the example of Am Sec who has had very great exits in the past year, is it possible for them to make a comeback story and regain trust of LPs?
Talking about third quartile legacy funds that can win against newer up-and-coming funds like Nautic who have raised bigger funds recently arguably
Will business school exits at those new funds catch up to the legacy names?
Turning around a declining fund is challenging but not impossible. Based on the most insightful WSO threads, here are the key factors that could enable a fund to regain its footing and outperform:
1. Refocusing on Core Strengths
2. Talent Retention and Leadership Stability
3. Proven Exit Strategies
4. Adapting to Market Conditions
5. LP Relationship Management
6. Competing with Newer Funds
7. Business School Exits and Talent Pipeline
Final Thoughts:
A declining fund can absolutely make a comeback, but it requires a combination of strategic focus, leadership stability, and disciplined execution. Legacy names with strong reputations and talent pools have the foundation to outperform newer funds, but they must adapt to the current market environment and rebuild LP trust through consistent results.
Sources: Troubled fundraising processes, Q&A: Distressed/PE Associate
It depends on the platform. Typically the larger firms can survive a couple underperforming flagship funds (3rd/4th quartile), especially if they have a cohesive story to tell on lessons learned and how the strategy has been refined. It is much more challenging for any firm in the LMM/MM space because you don't have the larger franchise that LPs are committing capital to. TPG is an example of this. They had a couple funds during the last recession that were 4th quartile but have been able to rebound because LPs had a broader relationship with the firm beyond just their flagship vehicle and were willing to give them another chance. There are also plenty of examples of funds in the LMM/MM space that weren't able to rebound - eg Gores Group - and are now zombie funds.
If you're considering taking a chance on a firm with a spotty track record, you should really give that some more thought and speak to former employees. There's a decent chance the firm doesn't make it and the opportunity cost is massive when you factor in carry. If you can find a growing platform, not only will the culture be significantly better but you're not taking a binary bet on a firm that has a good chance of not raising another fund.
What about for a larger platform but not MF like Am Sec, AEA, or THL?
Congrats on AmSec
Nothing is impossible but it's going to be a serious grind for those firms. I'd take the under on all of them. Also consider that the culture has been impacted by all the failures and turnover that resulted from it. That can be a very tough environment to walk into as a new hire.
The longer things drag out, the more likely it is that the 35-45 year old people leave these firms to start their own thing as their carry is worthless and they've grinded way too long to get nothing. Those people will drag their favorite associates with them. I think it's pretty difficult for firms who are not going to hit carry to ever turn around as the good talent will bounce leaving shitty young talent and seniors who just don't care if the firm winds down over the next 10 years.
CD&R is one that comes to mind as a firm that had been heading for obscurity over tough performance that was able to turn it around (and look where they are now). Couple late 90s funds were bad performers.
Anything is possible
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