SMP
April 14, 2020

Which parameters of an existing fund could be adjusted?

An extension of the investment period may be considered. Unless foreseen in the fund documents, all LPs may have to be involved. LPs will most likely be re-negotiating terms, including management fees. Consideration may also be given to extending the term of the Fund to avoid unfavorable exits, again LPs will be negotiating terms, including management fees.

If there is excess dry powder, adjustments to the fund volume can be made to relieve the LPs which may also include re-cycling the dry powder in a second vintage of the fund which is subject to adjusted terms or rolling over exit proceeds into such new vintage.

In situations of more drastic need for adjustment comprehensive fund restructurings may be necessary. Such may include portfolio secondaries, whole of fund liquidity solutions and much more.

GPs may need to prepare for investor defaults or deferred contributions by LPs. This may include setting up a capital call facility, so that the company can continue acting quickly on opportunities and necessities. Also, it can be useful to ramp up cash reserves and adjust timing of drawdowns to ensure liquidity for the fund.

Finally, it may be wise to review and adjust the cost structure at the GP to cater for longer fundraising or to be able to delay fundraising of a successor fund to a more favorable fundraising environment.