LP Investing Digest #42
LP Investing Digest #42
Tweets on investing, and anything else helpful to LPs
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LP Topics Seminar: an ongoing biweekly 1 hour meeting with other LPs where we'll go over investment decks, capital call and distressed situations, and modeling. This is meant to provide a deeper look into existing LP investments. Please reply to this email if you’re interested.
LP Cohort: the August cohort is starting next week and I had a spot open up. Please reply to this email if it’s of interest. Review 4 deals with me (4 consecutive weeks) and other LPs to learn what to look out for in deals. I recommend doing this before the LP Topics Seminar.
Happy Friday and welcome back 👋
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Thought this was interesting.. note that:
IRR is sensitive to years outstanding (the quicker you pay back an LP, the higher the IRR) - for an illustration:
See the 6.3% IRR on the 2005 vintage.. multiple was 1.49x
Now see the 2003 vintage, which boasts 34% IRR, with a 1.70x multiple
On a related point, this a good reminder about how hard it is it to double your money (you don’t see any 2x’s below!) - more on this topic in why most LP investments won’t 2 your money
What happens when a GP stops communication? See more below as well as my two articles on this topic:
Is my investment distressed? (identifying distress)
My deal is distressed, now what? (communication with GP)
This is a subtle but important point - I’ve seen a few posts this week from GPs after the public markets took a dive on Monday.
The high level premise of the posts was that the private markets don’t have this fluctuation (and therefore you should invest in the private markets). I think the more correct interpretation would be that you simply don’t know about the fluctuations day to day, but they certainly occur.
Also recommend reading the excerpt below from Berkshire Hathaway’s 1987 Letter to Shareholders as well on this “Mr. Market” topic.
An interesting debate on terms to LPs - two links below. Worthwhile read to understand the different perspectives
All partnerships have to take care of their best interests - particularly important to understand this when you’re dealing with pref providers and lenders. In unfriendly and distressed situations the counterparty is generally friendly, until the misalignment gets extreme .. and then they’re not…
More on spotting GP/LP misalignment here
I heard of many similar cases like this - make sure the capital stack at closing was similar to your expectations
Friendly reminder on the only red flag I’ve published to date
Have a wonderful weekend!
Thank you for reading! I genuinely hope you found this helpful - the best way to say thank you is to spread the word.
I advise LPs on existing and potential positions and write articles here weekly on what I see in the marketplace that could help you invest better. You can find me on LinkedIn or Twitter.
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Limited Partners:
Potential positions - you’re considering investing and need an independent opinion
Existing positions - there’s a lack of communication, you’re concerned about fraud, or perhaps you got a capital call request and you’re not sure how to proceed. I have also helped LPs with a “post-mortem” analysis on deals that didn’t work out - it’s important to learn these lessons as opposed to just blaming the GP.
LP Cohort - review 4 separate memos together with me and other LPs to learn how to vet LP investments.
LP Topics Seminar - an ongoing biweekly 1 hour meeting with other LPs where we'll go over investment decks, capital calls, distressed situations, and modeling. This is meant to provide a deeper look into existing LP investments. Please reply to this email if you’re interested.
LP Investing Lessons Podcast - learn from others investing lessons here. if you're an LP with lessons learned from a successful or unsuccessful investment, consider replying to this email to share your knowledge with others. Both the LP and GP in the recording are kept anonymous.
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General Partners:
Deck review - I’ll look over your marketing materials from the perspective of an LP and provide slide by slide commentary to improve your pitch
Investment review - I’ll provide independent feedback on an opportunity you’re pursuing
Capital call advisory - you suspect that you’ll need to make a capital call, but aren’t sure how to proceed or communicate the message.
Other - anything from waterfall/fee advisory to disagreements between co-GPs on the proper path given a set of circumstances
General Consulting: modeling, strategic advisory, underwriting training, etc.
If you’d like to speak on the phone, you can reach out to me any time at aleksey@hey.com