A State of Mutual Mistrust

General partners and limited partners have become scared of the same thing: Each other.

At least two dozen times in the past month, a GP has asked me something like: “Have you heard anything LPs not honoring their existing fund commitments?” At the same time, nearly as many LPs have asked me: “Have you heard about GPs calling down capital sooner than they need it, in order to guarantee that it doesn’t dry up?”

As for the first question, I’ve heard a few isolated anecdotes. Most of these are limited to high-net-worth individuals, which typically affects small VC funds more than large buyout funds. Plus a few about institutional investors who have had short-term liquidity troubles (frozen money-market account, for example), but most of them have been resolved amicably. Far more common has been the cancellation of verbal commitments to new funds, with LPs either bailing completely or delaying the hard circle until 2009. But, still, this is an exception rather than a rule (brand new commitments, however, are painfully hard to come by).

As for the second question, it seems to be mostly a boomerang fear. There was that Cypress Group situation, but that was very firm-specific. Most fund agreements preclude a GP from calling down cash indefinitely, with unused money required to be returned within 60 or 80 days. But if anyone’s heard anything different, please pass it on…