5 ms·

My guess is they're rapidly trying to deploy their capital before investors rescind their pledges. Once it's deployed, they can collect fees on it for decades.

by kolbe 4y ago

jacquesm 4y ago
Investors can't rescind their pledges that easily. Once committed if you do not honor a capital call there usually are pretty stiff penalty clauses for not fulfilling your obligations.
- kolbe 4y ago
  I know it's not easy, but generally the penalties are less than say investing in something that's 3x overvalued and will be locked up costing 3% a year in management fees for 15 years.
  - jacquesm 4y ago
    Interesting, ok, I'm a party to two such agreements, I'll have a look to see what exactly would be the consequences in a case like that. I ran the figures when I made the commitment, basically wrote off the investment on day one because I see VC investing as a very advanced form of buying lottery tickets, it is so hit-and-miss that the only way to spread your risk is to have as wide a portfolio as possible but I never considered the scenario where a fund is so badly run that they will quite literally burn your cash. The funds I'm in are pretty respectable.
    - kolbe 4y ago
      I lived the 2008 crisis, so maybe I'm overly pessimistic about investment managers from what I saw back then. But it seems to me that it's easy to appear respectable when everyone is making money, but true honor is tested in times like these. I mean, look at Melvin, right? He was a wunderkind of how to do things right until he lost some money, and now he's threatening to close his fund and immediately launch a new one, just so he can reset his high water mark. I got a call once from a VC fund manager who wanted to buy some private stock I owned well over the recent raise price, because he had unused cash left over that would otherwise go undeployed. There's just all sorts of slimy things that happen, and Tiger deploying tons of cash into deals that no one else except Insight will do looks a little skeptical.
      - jacquesm 4y ago
        These are excellent points and I will definitely act on them. Thank you for the wake up call. Fortunately the amounts involved are modest (a few hundred K) but still it is a thing to be more aware of. Another bit of good news is that I am close enough to the fund managers that I can see what they are up to and I have not seen any 'false moves'. But it would still be a very good idea to refresh my knowledge of the various obligations and how the terms might be abused. On the plus side, some of the people on the LP side are heavyweights that would likely be able to make a significant problem for the fund managers if they ever mis-stepped.

My guess is they're rapidly trying to deploy their capital before investors rescind their pledges. Once it's deployed, they can collect fees on it for decades.

by kolbe 4y ago

My guess is they're rapidly trying to deploy their capital before investors rescind their pledges. Once it's deployed, they can collect fees on it for decades.

jacquesm 4y ago

Investors can't rescind their pledges that easily. Once committed if you do not honor a capital call there usually are pretty stiff penalty clauses for not fulfilling your obligations.

kolbe 4y ago
I know it's not easy, but generally the penalties are less than say investing in something that's 3x overvalued and will be locked up costing 3% a year in management fees for 15 years.
- jacquesm 4y ago
  Interesting, ok, I'm a party to two such agreements, I'll have a look to see what exactly would be the consequences in a case like that. I ran the figures when I made the commitment, basically wrote off the investment on day one because I see VC investing as a very advanced form of buying lottery tickets, it is so hit-and-miss that the only way to spread your risk is to have as wide a portfolio as possible but I never considered the scenario where a fund is so badly run that they will quite literally burn your cash. The funds I'm in are pretty respectable.
  - kolbe 4y ago
    I lived the 2008 crisis, so maybe I'm overly pessimistic about investment managers from what I saw back then. But it seems to me that it's easy to appear respectable when everyone is making money, but true honor is tested in times like these. I mean, look at Melvin, right? He was a wunderkind of how to do things right until he lost some money, and now he's threatening to close his fund and immediately launch a new one, just so he can reset his high water mark. I got a call once from a VC fund manager who wanted to buy some private stock I owned well over the recent raise price, because he had unused cash left over that would otherwise go undeployed. There's just all sorts of slimy things that happen, and Tiger deploying tons of cash into deals that no one else except Insight will do looks a little skeptical.
    - jacquesm 4y ago
      These are excellent points and I will definitely act on them. Thank you for the wake up call. Fortunately the amounts involved are modest (a few hundred K) but still it is a thing to be more aware of. Another bit of good news is that I am close enough to the fund managers that I can see what they are up to and I have not seen any 'false moves'. But it would still be a very good idea to refresh my knowledge of the various obligations and how the terms might be abused. On the plus side, some of the people on the LP side are heavyweights that would likely be able to make a significant problem for the fund managers if they ever mis-stepped.