April 14, 2020

What about GP commitments?

GPs may also have to reconsider their existing and future GP commitments.

Due to the crisis, existing funds may need more time to realize their investments and exit returns may be below pre-crisis expectation. In such circumstances GPs may want, or have, to finance GP commitments to later fund generations. When doing so existing fund documentation must be considered when discussing potential collateral with financing providers.

The structure of GP commitments to future funds may also be reconsidered. It may be helpful to GPs if a certain share of their GP commitment does not need to be contributed in cash or can be offset against a portion of management fees. However, many LPs feel that alignment of interest diminishes with non-cash contributions and management fees that allow for reductions to finance GP commitments were too high in the first place. In addition, any such structure requires careful tax planning.