Has anyone been a partner / MD / VP / principal / associate / etc. at a PE fund that imploded and collapsed, or at least a fund that was falling apart / stagnating?
If so, what were the contributing factors and how did you navigate the situation (did you lateral, out to grad school, did you ask for more money, etc.)? Understand that this is a pretty unique set of circumstances and likely won't get many responses, but at least worth asking.
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Comments ( 42 )
Once it is clear to the fund's founders that the fund is going to stagnate, they pretty quickly switch from growth mode to minimizing cost base to a bare minimum. It can be quite good for those partners as they can extend out the time on assets.
So if your fund is stagnating / unlikely to raise another fund then best to move on.
Secondary funds can come in and reset carry on assets but still pretty challenging to raise another fund off that track record.
Hope that helps.
Of the few funds that I am aware of that have ended up in this situation it has usually been 2-3 bad deals which means the next fund is hard to raise. This is particularly true for first time funds, where sometimes just by bad luck the deals haven't worked out as planned and there isn't a prior fund to point to.
Thanks sir. One of the thoughts I've been having recently is around the longevity / sustainability of PE as a career path. It's why I've been trying to gather data points / anecdotes around funds that stagnate / die. It sounds like you are implying that PE isn't at a stage where funds are stagnating merely because they can't even find a deal to do --- they can still get deal flow, but it's doing bad deals that ultimately are killing funds today (as has always been the case).
PE is still perceived as an incredibly prestigious + rewarding career path and, though I chose not to pursue that track post-banking, there is always lingering temptation to explore. That's why (to be honest) I think a part of this post is me trying to subconsciously convince myself that I made the right choice.
But am also genuinely curious to see if there are an increasing number of funds that are collapsing, or if deal flow is beginning to dry up across the space.
IMO it's pretty hard to get a pulse on that because of how insulated PE assets are from external valuation and the long tail on fund lives. Take a look at Castle Harlan for instance, which at one point had a billion dollar fund - basically was on the brink of closing it's doors a few years ago but is still somewhat active as an independent sponsor with a couple of portcos left.
The last fund I worked at hasn't imploded, but is headed in that direction due to the majority of its investments not working out and continuing to rack up debt. The entire time I worked there the firm was unsuccessfully trying to raise more capital for its next fund and it gradually became more clear it wasn't going to happen as the capital options became more and more....interesting....to say the least (random middle eastern sovereign wealth funds and even Russian oligarchs). As mentioned, due to the long tail of fund lives it can take many years for a proper shutdown to take place and the fund may still make deals in the meantime.
I've not personally been witness to this at a fund I worked at. However, a well-known fund down the street from ours is, and everyone knows the juice. Basically, they're known to work their juniors to the bone, have weak leadership and poor culture, (i.e., senior partners taking calls from the beach while the rest of the team is grinding on live deals). A couple of investments went bad in the last few years, and people started pointing fingers. This led to an internal mutiny of sorts. Many people were ousted. They're struggling to hire, and struggling to raise another fund. We'll see what happens.
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negative, ghost rider
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Providence ?
No sir.
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My first fund blew up - joined a well established pe firm which raised a distressed fund that performed extremely well (fund 1). The team from that fund left to start their own spot and the following fund was a brand new team (fund 2). I joined at the end of fund 2 > fund 3 which fell apart during fundraising due to one of the partners leaving and firm founder deciding to shut down the distressed group. As an associate I had been looking around, I got a nice bonus at the end of my first year and was told to find a new job asap/would be paid a salary while I searched. Everyone ended up leaving immediately after besides 1 vp and 1 associate who stuck around to help with liquidation of assets. Both got paid above market and had a chill life for a few years before going elsewhere
Sounds….. not that bad (for the VP and Associate)
Is this Carlyle distressed?
Does anyone have experience on what typically happens at a fund where the next fund raise is challenging and ends up being materially smaller than the prior fund? Any perspectives / experiences on what happens to (i) culture, (ii) headcount, (iii) compensation, (iv) strategy (e.g., deploy quickly and raise again vs. smaller deals?)
Kayne Anderson e&p team canned bc of this
What happened there?
Went crazy in the mid-con, backed weak teams, and had partners who have just been lucky and didn't understand the business
BC Partners (soon)
Novalpina
Agreed. Add Anacap.
Why BC Partners ? Thought they were too big to fail (at fundraising) at this point. Chewy/PETM ended up being okay.
Wondering what everyone at Novalpina is up to now...
Novalpina: Many people left to other funds, check out Linkedin
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Crestview isn't like that but same path. Previous fund raised 6 or 7 years ago at 3.2 billion, their latest fund closed at under 2 billion
There are a few historically well-known funds in the same boat. Very interesting to see the "haves" vs. "have nots" particularly in a market environment where some funds are raising 10-20bn+ funds in a matter of months, and other good brands are struggling. There almost feels like an 80/20 going on here - wouldn't be shocked if actual funds raised looked something like that distribution.
Haven't been at one, but energy-focused funds with early-mid 2010's vintages come to mind. So not necessarily the entire firm but certain funds. Some random ones I recall when I covered oil & gas: Warburg Energy Fund ('14), Enervest 7 and 8 ('10, '12), someone mentioned Kayne Anderson, Blackstone and Apollo had some real doozies in the energy space too. Hope that helps as a starting point.
Agreed. At least BX had Cheniere, though.
Would add First Reserve to this list as well. It was among the largest funds in the world in the late 2000s and today is a fraction of what it once were. First Reserve raised $7.8B in 2006 and $9.0B in 2009, then raised $3.4B in 2004 after targeting $5.0B, and then raised $465M in 2020. The 2006, 2009, and 2014 vintage funds all had negative IRR and MOIC <1.0x. Encap has had a similar trajectory after all being one of the largest funds in the world at one point.
Ooof….
First reserve still has like 10MDs, no idea what they do all day
I'd assume workouts of existing investments, potential liquidity options for LPs (secondaries, extension funds) etc
A lesson in commodity cycles...they'll try to rebrand and market their renewables funds but TBD if that'll save the firms.
Ask AEIP. Most recent fund is completely underwater, did a bunch of bad deals, impressive to have screwed up a 2019 vintage already
Looks like CCMP has followed a similar trajectory to others in this thread. Used to be one of the largest funds while under the JPM banner, last fund raised was in 2014 and headcount a fraction of what it once was. Anyone know what happened with them?
They took a bath on a bunch of energy deals (chaparral comes to mind)
Never been in a situation like this personally on the fund side, but I would imagine it would be understood internally long before it is noticed externally. Acquisitions teams would be shuttered first most likely in a bid to cut internal costs and perserve capital to deal with clawbacks. The death cycle as mentioned by others will take years as LPs are usually in as much denial as the fund itself that the best best is to just cut off the shit companies and take a bath on the investment rather than continuing to limp along racking up more debt costs.
But I have indirect experience with this on the portco side. PE shop bought a company that family friend owned, the owner stayed on for a few years growth was massive. He left then the company straight up cratered. The PE firm limped it along until it ended up in bankruptcy court where the owner bought it back for pennies on the dollar. Was honestly shocked when the family friend said this was a relatively common occurance.
One of the portco's I was actively involved with was in a similar spot. Was in runoff/litigation for pretty much the entire time I was there, while simultaneously trying to raise even more debt despite the business model being unviable.
Frankly, reading about the Abraaj incident makes me more convinced that there's fraud going on at my old fund too. All of the recent deals have skewed toward emerging markets and investments with particularly long breakeven periods and high capital requirements.
Reviving this post as I've become a bit more... curious about this topic lately. I recently joined a fund (<1 year ago) as an associate. They were in the process of raising fund II, which seems to hinge on an investment from the first fund performing well. It is the largest position and undergoing a large capital spending project that is falling somewhat off course. Nothing has happened yet, but as time ticks by, it seems like insolvency is on the horizon. The fund has other strong-performing investments, and others that are also not performing so well too. Even in a worst case scenario, returns would be ~10%. The firm also has other pools of assets, permanent capital vehicles, SMAs, etc.
This isn't a billion dollar fund, it's <$300M and I like the firm/people so wouldn't be totally offput if the next fund were smaller. No one can predict the outcome of the second fundraise, but if it doesn't go to plan, as everyone mentioned above, it seems like there would be ample time to figure something else out. My primary concern is how would this impact my ability to move elsewhere and find another role? How does it reflect on me? I'm only an associate at the fund and while it probably isn't a huge positive if the firm doesn't do as well, to what extent is it really a blackball on a resume?
I wouldn't worry, you will be fine, especially as an Associate, but you'll want to move sooner than later if you can because recruiting can take a while and you don't want to end up in a fund for a long time that' s in asset management mode.
2 recent cases come to mind: CI Capital basically decided to go into run-off a year or two ago. Everyone that left there ended up in really good spots, especially on the junior side. Another example is ORIX Capital Partners: they are imploding right now from what I've gathered - my firm was very late stage around a year ago selling them a company and they pulled out last second for reasons unexplained but from what we learned since is that they stopped deploying. A bunch of people have since left and they've all ended up at really good firms as well. As long as you're not the MD that oversaw a weak set of investments, you'll be fine. The biggest risk is you sit there and get no investment experience after being there for a while - that won't look good on your resume.
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