First Round: Sound the alarm!

Diminishing returns: one of the private equity industry's burning issues.

With the market hot and dry powder piling up to record levels, general partners are working hard to deliver the message that they will continue to treat limited partners to the returns to which they have become accustomed. 

When First Round attended a background briefing lunch in London hosted by one of the world's leading private equity firms, the topic was bound to come up. Discussion of the European banking sector and corporate carve-outs was fuelled by some of the finest in-house sushi First Round has ever tasted.

As the lunch was nearing its end, however, the subject of returns was raised; what did the managers in the room expect the firm to generate on its latest mega-fund? No sooner had the most senior exec in the room uttered the words “In excess of twent…” than a piercing fire alarm cut in.

Glances were exchanged. “This is not a drill,” said a credit specialist, and the assembled journalists started fumbling pads and pens back into briefcases. The usual post-prandial networking was replaced by snatched exchanges of business cards and a dash to the emergency exit (via the cloakroom to pick up coats, and the snack table to pick up chocolate, of course).

First Round had flashbacks to a lunch in the summer of 2015 hosted by a fund of funds manager on the top floor of the 'Walkie Talkie', one of London's tallest buildings. An evacuation down 37 flights of stairs in the summer heat had been an unwelcome end to an interesting meeting.

Thankfully, this was less dramatic, but as the party reconvened on the pavement on [REDACTED] Street in Mayfair, First Round couldn't help wondering whether one of the PRs in the room had had a finger on the panic button, ready to evacuate the premises if the discussion – or expectations – became overheated.