LPs may not be able to fulfill capital calls

If you’re thinking about raising a fund next year, think again.

The downturn in the public markets has had a significant impact on limited partners, throwing their allocations out of whack, and there is growing anecdotal evidence that venture and private equity firms are being affected.

Take for example Alpinvest Partners, which has more than $51 billion under management. The LP is currently evaluating about $3 billion worth of secondaries “with a short fuse,” according to a VC source. The investor says that Alpinvest told him that it has no interest in new funds because “so many great managers can be had for 50 cents on the dollar” on the secondary market.

The VC source says that he was also recently approached by another LP with several billion dollars under management. (He declined to name the investor.) The LP has seen the value of its liquid securities decline from about $2 billion to $1 billion and is now concerned that it won’t have the cash to fund $1.5 billion in commitments to VC and PE firms.

The VC says that to make certain it has cash, the LP is begrudgingly selling stock and pulling money out of hedge funds. It has also reached out to every one of its fund managers to let them know about its situation and ask for their help.

It doesn’t want to have to sell its stakes on the secondary market, so it’s asking funds to transfer parts of its commitments to other LPs, the VC says.

In the case of this particular VC, the LP committed less than $20 million and is looking to reduce its commitment by 50% to 75 percent. Though the commitment is relatively small, the LP is pursuing the reduction. “They’re looking for scraps anywhere they can,” the VC source says.

This VC’s experience is not unique. The Wall Street Journal reported last week that the California Public Employees’ Retirement System, the nation’s largest public pension fund, “has been unloading stocks and other assets in a falling market to make sure it has enough cash to meet its obligations, including capital calls due to private-equity partners.

CalPERS has asked some of its partners to delay their capital calls, according to people familiar with the matter. A CalPERS spokesperson said that CalPERS has been ‘working with its private-equity partners on the timing’ of the capital calls.”

Other LPs are also trying to raise capital. Harvard Management Co. has retained Cogent Partners to sell about $1 billion worth of stakes in venture and buyout funds, as first reported in mid-October by PE Week affiliate peHUB.com.

Last week, VentureWire reported that, in addition to CalPERS and Harvard, the list of LPs asking their GPs to delay capital calls, looking to sell stakes on the secondary market or sell other assets to raise capital includes the university endowments of Brown University, Columbia University Investment Management Co., Duke University Management Co. and University of Virginia Investment Management Co. —Lawrence Aragon