Wednesday, December 8, 2021

Navigating Larger and More Frequent Funds

Limited Partners (LPs) investing in private equity funds have always been faced with inherent issues relating to investment strategy scalability. Specifically, as General Partners (GPs) become more successful, they typically raise larger and larger funds, which often translates into lower returns for LPs. In today’s competitive US private equity market, this issue has been exacerbated for LPs. A situation that LPs are commonly faced with is the following: a GP they’ve invested with in the past is raising a fund that is double the size of their previous fund and the GP is back in the market much sooner than anticipated. In addition, the GP’s most recent fund was deployed over a short amount of time so it is still “early” in showing meaningful progress. So how do LPs deal with these types of situations? What type of due diligence can potential investors perform to quantify and fully understand the strategy scalability risk associated with these opportunities? This brief article will shed light on the market dynamics surrounding larger fund sizes and shorter fundraising periods, while also providing due diligence insight on how Wilshire Private Markets assesses scalability risk.
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