Goldman Sachs Whittles Fund of Fund

Joining some of its peers in the fund of fund business, Goldman Sachs Asset Management has cut its $1.5 billion Peptech fund by $150 million. The cut, retroactive to April 1,will effectively lower the fund’s management fee by 10%.

The fund of funds’ reduction comes on the heels of similar cuts by large venture capital funds in Europe and North America totaling some $4.2 billion. With a dismal outlook for funds raised in 1999 and 2000, limited partners have been eager to slim down their exposure to venture capital and have been pressuring VC firms for some relief from management fees and capital commitment. Peptech, which invests in technology focused VC funds, closed in late 2000.

Some of the 40 partnerships that Peptech has invested in have cut their own funds, says a Goldman Sachs employee who wished to remain anonymous.

In part, that is why Goldman decided to cut its Peptech fund, the source says. But the main reason was the slowed pace of deal flow, and the returns Peptech investors could expect from the funds in which it has already invested. “I think it was understood by both the partnerships we have invested in and the LPs, that based on the investment opportunities out there this was the best thing to do,” the source says.

While the cut is only a small bit of financial relief for Peptech’s LPs, it is a large gesture of goodwill, the source says. “It doesn’t have much of an impact over the life of the fund, it just reduces the limited partners’ capital commitment.”

Goldman Sachs employees are among the largest group of investors in Peptech, which has drawn down 34% of the money committed to the fund of funds.

Andy Chase, who runs CitiGroup’s venture capital fund of funds, says on average his capital commitments have shrunk by 10% in the last 18 months as the VC funds he has invested in have returned money to investors.

“We have given it back to the LPs in all cases,” Chase says. “We are flowing through all of the reductions to gladly accepting, hands-out, waiting LPs. LPs in general are more nervous about the space, and if they are individuals they aren’t as wealthy as they were.”

All the money being returned is from late 2000 and 2001 funds, Chase says, and although a good deal of the partnerships he has invested in have already made fund cuts, he expects there are more to come.

“They keep coming every day,” Chase says.

Contact Michael Copeland