Defaulting Limited Partners: Challenges For Private Equity In 2009

Introduction

Liquidity concerns are all too familiar to most private equity fund managers these days, and investors in their funds have not been immune. However, at the time of writing, there have been few significant public defaults by investors in the major private equity funds. There are a number of reasons for this: among them, changes to the credit environment and the consequent (and widely documented) drop-off in deal flow have meant that capital calls are simply not being made at their usual levels of frequency or size, providing a safety valve for investors who would otherwise be feeling the pinch. To date, General Partners have been able to manage the issue by either holding off on investments (whether by choice or circumstance), or by restructuring their funds (for example in a way that offers investors the ability to elect for the consequences of default without being subject to formal default proceedings).