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April 28, 2009

When the shoe is on the other foot...

From a promotion for a masterclass for US PE fund managers titled "How To Keep Relationships with LPs Harmonious - Despite Recession, Credit Crunch, Mark-to-Market, Capital Calls, & Other Causes of Frustration, Anger, Mud-Slinging, & Divorce":
In this post-Madoff world, there are two concepts LPs like me have gotten more and more concerned about. First is transparency. Believe it or not, I know LPs who have started to go around their GPs and contact managers of portfolio companies directly to confirm their fundamentals first-hand. Would you know if your LPs did that? And frankly, do they have a reason to?

The second word? Liquidity. With capital call defaults an industry-wide problem, you need to ask yourself - are you prepared with creative remedies? Or are you likely to be caught off-guard?

...I’ve watched as fund managers try to sugarcoat bad news — which never works. Or they fail to communicate as openly as they should -- which makes tempers flare and attorney phones ring.

The balance of power these days has squarely shifted in favor of LPs, and they know it. They’ve read about the concessions large fund managers such as TPG and Carlyle are making - from scaling back commitments to cutting management fees - so they’re not shy about asking for flexibility on such touchy issues as terms, drawdowns, and secondary transfers. As a GP, fingers in all directions are pointing to you. You can’t run. You can’t hide.
(Emphasis mine)

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in