Private Equity Now – Impact on Fundraising (LP Perspective)

We resume our discussion of the private equity liquidity crunch and its impact on fundraising, this time from the LP’s perspective. The supply/demand imbalance in the fundraising environment has shifted to favor LPs. This gives them greater GP access, longer diligence windows, and more negotiating power with LPA terms. 

But many LPs, their investment programs tied to distributions, are hamstrung: no cash in means no cash out. For those with ample dry powder and who deploy from independent pools of capital, now can be a great time to invest. That said, there are pitfalls to avoid. 

Lower distributions dominate headlines, but less publicized is a slowdown in capital deployed. GP grapple with fewer exits, which means fewer businesses bought. Compounding the issue is the number of GPs raising capital and the amount of dry power chasing assets. For LPs looking to deploy capital, choosing managers who can’t find enough opportunities or settle for lower quality assets that introduce unnecessary risk into the portfolio is problematic.