J.P. Slashes Its JPMP Commitment

J.P. Morgan Chase announced a $1.4 billion reduction in its commitment to the JPMorgan Partners private equity fund, citing a desire to return to its investment pace of about $1.2 billion per year.

The move comes months after J.P. Morgan Chase received commitments from its limited partners and closed the fund. LP commitments, according to a source close to the fund, remain unchanged from the final closing in late 2002, at $1.65 billion.

In 2000, the fund’s original target was $13 billion, and J.P. Morgan Chase at first agreed to pour in $6.25 billion, or nearly half the fund target.But the shift in market conditions made the fund’s target an impossible one to reach and spend, so the firm trimmed the fund to $7.9 million.

The source said the bank, after conferring with its advisory board and limited partners in April, agreed to reduce its commitment and will now put in $4.85 billion, a sum that still ranks the fund in the upper echelon of U.S.-based funds.

What still is unanswered, however, is whether the LPs now have a larger stake in the fund, since their portion is now more of the pie.

“I would assume their LPs are still satisfied with JPMP’s strategy,” said an LP, regarding the downsizing. “If they weren’t, they would make a lot of noise, and probably demand retribution.”

A fundraiser at a rival private equity shop said: “Downsizing makes sense in this market, since they’d never get that money spent anyway. Thirteen billion dollars was probably out of reach even before the bubble burst.”

Actually, the spin coming out of the JPMorgan camp pointing to the reduction, as “a good thing” rings true, with many buyout pros lamenting of late about the lack of solid buyout opportunities available these days.

Aside from negative returns, the last thing an LP wants to see is stagnant money; so reducing a fund from 11 to 10 figures may be the prudent move.

Of course, hindsight is 20/20, and when JPMP pros started bragging about the size of their upcoming fund, many in the industry never believed they’d ever be able to allocate all of the $13 billion toward solid investments.

While none of JPMP’s LPs are talking, other LPs agree with the move.

“Frankly, you’d be hard pressed to find any LP in this market not willing to have their allocation reduced,” says one LP. “As LPs, we hire GPs to make investment decisions, and if they think it’s in everyone’s best interest to reduce, then you go along with that.”

This story originally appeared in Buyouts, a related publication.