Should struggling GPs be raising money?

Welcome back and happy Friday!

Here's an intricate topic - GPs raising money on new deals while their existing investments struggle.

LPs get (understandably) upset when they’re stuck in a troubled deal, and the same GP is out raising fresh capital for a new project - smiling on webinars, posting updates, and acting like everything is fine. They have a right to be frustrated. It’s painful to watch your investment falter, and even worse when it seems like the GP has moved on.

But there’s another side to this as well, to be fair. Being a GP is a business, one that heavily relies on fees and acquisitions.

Sometimes deals underperform or fail altogether. Surely we can all agree that just because a GP had a single challenge doesn’t mean they should shut down their platform and get another job, right?

In other words, capital calls (and distress) happen - and they’re not all created equal.

Today, I’d like to address this intricate topic from an independent lens in an effort to address both GPs and LPs.

Announcements (article continued below):

• Latest **article: **Tariffs and pricing control: why GPs control less than you think - which aspects of a real estate deal are truly up to the GP?

• **NYC LP Event Next Thursday, May 1st: **

• I still haven’t announced this publicly and we’re at 40/50 registrations currently. If you’d like to come please register here.

• You can expect a nice mix of allocators, family offices, and retail LPs in attendance. If you’re interested in sponsoring the event, please reach out.

• **LPs on GP-LP Match have now gotten 100+ deals for free and the platform is at 1,600+ verified LPs. **If you’re an LP or GP join here in under a minute. Pretty cool milestone recently!

Alright, first let’s get the basics out of the way.

What I’m discussing below are obviously my opinions and, in a very real sense, this article is one about ethics at the core. In other words, “at which point does it become ethically immoral to pitch new investors on new deals while having challenges” is a question rooted in ethics. At the end of the day, GPs are free to do whatever they want … and if LPs end up investing despite all the red flags, do my opinions really matter?😊

With that fun reminder behind us, here’s what bothers me most - it’s not the act of raising money while dealing with issues … everyone deals with challenges and GPs are in the business of raising capital. It's the lack of honesty or selective disclosure to new investors.

If you've been investing for any length of time, you know how easy it is to spin a story - you can see more on this topic as it relates to track record slides here. You can present a challenge as a win, highlight IRR over equity multiple, or blame macro conditions for things that were truly execution problems. Many LPs don’t ask the right questions - and some GPs may take advantage of that.

An incoming LP should know about any serious challenges in the GP's current portfolio. That context matters. It speaks to how the GP handles adversity, how they communicate, and how they treat their existing investors.

I often hear from LPs that say “I only like to invest in GPs that haven’t had a capital call” and I think this is deeply shortsighted. Some of the most experienced (and arguably best) GPs in the space have done capital calls and - gasp! - they might’ve lost investors money on very few occasions as well throughout dozens of years in business.

Here are a few takeaways I think LPs should keep in mind:

• A capital call or underperforming deal should not, on its own, make you walk away from a totally different investment - context matters.

• What should immediately make you disinterested is dishonesty or misleading statements.

• Not all capital calls are the same and some are actually in the best interests of the LPs

Furthermore, before committing to a new deal with a GP who might have issues in their portfolio, ask:

• Are there any current deals facing challenges or capital calls?

• How is the GP addressing those issues?

• Have they fully disclosed these challenges to investors in those challenging deals Ask for a reporting package!

If the GP can answer these directly and transparently, that’s a good sign. If they dance around the question or give you watered down (or half truth) answers, that’s a red flag.

In summary, It’s not inherently wrong for a GP to raise money while dealing with a troubled deal - in fact I’d even call this normal course of business. What matters most is how they communicate, how they prioritize their fiduciary duty, and whether they’ve learned and adapted. LPs should stay curious, ask pointed questions, and look for truth over polish.

The next time you're pitched a deal, don't just ask about the new opportunity. Ask what’s happening with the old ones.

When you’re ready, I could help you in 3 ways - simply reply to this email if one is of interest:

• Limited Partners:

• ***GP-LP Match - ***a simple way for you to get more deal-flow that matches you precise LP parameters. You can join here in under a minute. I’m behind on verification for LPs so please ping me privately to expedite once you sign up.

• 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 Course - review 4 separate memos in 4 weeks together with me and other LPs to learn how to find good 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 Community - ***free 2,800+ member LP Investor community on Twitter

• ***Find GPs ***in unique asset classes/geographies on my monthly intro post (see LinkedIn’s post as well for more)

• 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 me at aleksey@centriocapital.com.