After hosting a Merge Briefing in Vienna attended by a number of venture capitalists and negotiating with private equity investors regarding the financing of a potential acquisition by one of their portfolio companies earlier this week, I have discovered that although there were record amounts of funding raised in the two years prior to the beginning of our worlds financial crisis, PE investment managers are being asked not to call on those funds.
I have been told by a number of investment managers that one of the reasons why PE and VC investors were sitting on the sidelines the last few months has not been because they are waiting for prices to come down even further, but rather that their LPs (limited partners) have kindly requested them to hold back on their capital calls as the LPs do not have the cash available to fulfill their commitments. The investors also added the comment that they may have contracts for the funds and the LPs are obliged to deliver the funds, but what could they do if their LPs would default on those obligations. Suing your source of capital is not a good way to maintain and build a relationship with these vital partners in the private equity industry.
Hence, PE investors may have raised tons of money in the recent pre-crash past at least on paper but, are not really able to utilize those funds.
This quagmire may take a few more quarters to sort itself out.
Posted by Miro Parizek
, Managing Director on 30 April 2009