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Anybody in a VC Private Equity fund: can you tell me how capital calls work? In a hedge fund, limited partners just gives the fund a certain amount of capital

Anybody in a VC Private Equity fund: can you tell me how capital calls work? In a hedge fund, limited partners just gives the fund a certain amount of capital and you see what happens. The way capital calls have been described to me is that limited partners just say they have a certain amount of capital available, and at any time the VC PE fund just requests/demands it from your bank account? Which seems a little odd and inconvenient to me.

joshu 5y ago
yes, they send you a note and you wire the money in. eventually they start doing distributions (hopefully). it gets hectic.
- vmception 5y ago
  hmm, that model wouldn't be good for me. I mean I usually stay pretty liquid but I'm liquid in positions I want to see through to a price target! Just getting a random email or message to go indefinitely illiquid because I told them I'd be an LP would be a tough sell for me. I like the hedge fund with a heavy side pocket better. so its kind of cool Sequoia is describing just that. But I am wondering if there is an existing hybrid where the the PE fund has all the capital upfront and just has liquid investments for the cash before finding illiquid investments, where the majority of capital winds up in the illiquid investments anyway. General Partners can 1) keep the current fund open for new limited partners 2) start a new fund for people that want to feel like they are on the ground floor, and allow the GP to get a new headline about how fast they raised a bunch of capital.
  - joshu 5y ago
    they don't call indefinitely, the committed amount is called over a 2-3 year period. they do this because it lets them keep the IRR low (since uncalled capital isn't invested and thus not counted) LPs generally do not want to have them take money and invest it into one thing and then another thing. they want to choose specifically what things they allocate to and nothing else. accounting is much more complicated than closed end fund. so essentially the way the world works means the things you are hoping for will never happen.
mbesto 5y ago
> The way capital calls have been described to me is that limited partners just say they have a certain amount of capital available, and at any time the VC PE fund just requests/demands it from your bank account? Which seems a little odd and inconvenient to me. This is essentially how it works. The alternative is the following: Let's say you raise a $1B fund and everyone gives you cash up front. That $1B is effectively going down in the value if it just sits there in cash.
- vmception 5y ago
  I like the hedge fund + side pocket model way more then About time that these big VCs are catching up to it The side pocket is a private equity fund, and limited partners can always create additional subscriptions if they want to invest more into the main fund as long as they meet the minimums
  - mbesto 5y ago
    I don't disagree but this is really only possible with sources of cheap capital. Rolling funds are not easy to maintain and very risky on the GP side of things.
    - vmception 5y ago
      Restrictions and limitations on redemptions from the liquid fund already solve this. And money in the side pocket can be kept forever in long term positions. Even to an LP that previously did a full redemption, the liquidity events from the side pocket can result in an infinitely long redemption.
blitzar 5y ago
You have pledged that money, there is nothing inconvenient about it. You can place it in a seperate bank account of your own awaiting investment if it breaks your brain less.
- vmception 5y ago
  Nope still “breaks my brain”, someone else wrote that this structure is because it would be just sitting in their bank account if they collected it all up front, its not different if its just in mine, unless its invested in liquid assets but if its in liquid assets then it could decline in value in which case I wouldnt have that much to invest. How do people really deal with this model? I wonder what GPs have seen from their LPs.

joshu 5y ago

yes, they send you a note and you wire the money in. eventually they start doing distributions (hopefully). it gets hectic.

vmception 5y ago
hmm, that model wouldn't be good for me. I mean I usually stay pretty liquid but I'm liquid in positions I want to see through to a price target! Just getting a random email or message to go indefinitely illiquid because I told them I'd be an LP would be a tough sell for me. I like the hedge fund with a heavy side pocket better. so its kind of cool Sequoia is describing just that. But I am wondering if there is an existing hybrid where the the PE fund has all the capital upfront and just has liquid investments for the cash before finding illiquid investments, where the majority of capital winds up in the illiquid investments anyway. General Partners can 1) keep the current fund open for new limited partners 2) start a new fund for people that want to feel like they are on the ground floor, and allow the GP to get a new headline about how fast they raised a bunch of capital.
- joshu 5y ago
  they don't call indefinitely, the committed amount is called over a 2-3 year period. they do this because it lets them keep the IRR low (since uncalled capital isn't invested and thus not counted) LPs generally do not want to have them take money and invest it into one thing and then another thing. they want to choose specifically what things they allocate to and nothing else. accounting is much more complicated than closed end fund. so essentially the way the world works means the things you are hoping for will never happen.

mbesto 5y ago

> The way capital calls have been described to me is that limited partners just say they have a certain amount of capital available, and at any time the VC PE fund just requests/demands it from your bank account? Which seems a little odd and inconvenient to me. This is essentially how it works. The alternative is the following: Let's say you raise a $1B fund and everyone gives you cash up front. That $1B is effectively going down in the value if it just sits there in cash.

vmception 5y ago
I like the hedge fund + side pocket model way more then About time that these big VCs are catching up to it The side pocket is a private equity fund, and limited partners can always create additional subscriptions if they want to invest more into the main fund as long as they meet the minimums
- mbesto 5y ago
  I don't disagree but this is really only possible with sources of cheap capital. Rolling funds are not easy to maintain and very risky on the GP side of things.
  - vmception 5y ago
    Restrictions and limitations on redemptions from the liquid fund already solve this. And money in the side pocket can be kept forever in long term positions. Even to an LP that previously did a full redemption, the liquidity events from the side pocket can result in an infinitely long redemption.

blitzar 5y ago

You have pledged that money, there is nothing inconvenient about it. You can place it in a seperate bank account of your own awaiting investment if it breaks your brain less.

vmception 5y ago
Nope still “breaks my brain”, someone else wrote that this structure is because it would be just sitting in their bank account if they collected it all up front, its not different if its just in mine, unless its invested in liquid assets but if its in liquid assets then it could decline in value in which case I wouldnt have that much to invest. How do people really deal with this model? I wonder what GPs have seen from their LPs.