LPs enjoy a little breathing room

There is no denying the fundraising slowdown has been a source of stress for GPs, but for LPs it has meant feeling much less harried.

“I think on balance, it’s more appealing to be committing capital as an LP now than it was a few years ago,” said Allen Waldrop , director of private equity for the $78 billion Alaska Permanent Fund Corporation . “It’s taking longer to raise funds, so LPs have more time to do the due diligence, evaluate the managers, and you can watch the track records evolve over time. If you’re concerned about the [valuation] marks and how they’re evolving, you can wait a quarter or two.”

“Obviously, the very best managers are still able to raise capital really quickly, but I think people [LPs] have time to do their work now,” he said. “[As an LP], who you commit to really matters. In a frenzied market, who you commit to matters less because you will still get strong returns from the market. But we really want people who are going to outperform the broader market.”

To do their jobs properly, LPs can’t be rushed. It isn’t as simple as looking at the MOIC or IRR of a manager’s previous funds.

“The ticket to the dance is the strong performance over a long period of time,” Waldrop told me. “And then we really want to understand how it [the GP] got that performance. How are they sourcing the deals? What edge do they have over others? Then once they are in the deals, what are they doing to add value to the company? Do they have a particular expertise in an industry or a subsector? Do they have a particular expertise in a functional area? If we talk to the management teams of the portfolio companies, what would they say about the value of the manager and how involved they are? Who do they turn to when they have important strategic decisions and things like that?”

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