Yesterday I had a beer with a close friend who is a general partner in one of Australia's largest buyout funds. Slightly white-faced, he told me that a major limited partner in their fund had phoned and warned him that they would accept no capital calls before January. The LP also hinted that receiving a capital call would impact the chances of a commitment to any future fund.
It's a timely subject. Permira just announced that they are allowing their backers to escape from €1.5bn in capital commitments. This followed news that their largest limited partner, SVG Capital, was unable to meet capital calls. And it's been widely reported that Washington Mutual failed to meet capital calls in September and October.
The Wall Street Journal put it this way:
"From pension funds to rich individuals to once-deep-pocketed financial institutions now in desperate shape, this year's plunging markets have made it much harder for some investors to come up with the money they promised to invest in venture-capital funds...."
My guess is that most of this is unfolding very quietly, behind firmly closed doors. No LP wants a reputation for failing to meet a capital call. And GPs are aware that taking aggressive legal action, regardless of how justifiable, isn't a smart way to build long-term relationships in the investor community.
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