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How do you actually fire a manager mid-fund without blowing up the LP relationships

gustavo_paredesgustavo_paredesAG1APRO17

Sitting on a 2021 vintage fund, $8.2M committed, 14 LPs, and the GP has deployed about 60% into three assets in the Tampa market. Two of them are fine. The third one is a 48-unit that has not hit a single projection since acquisition and the manager has gone from quarterly calls to a newsletter that comes out maybe twice a year with a lot of photos and not a lot of numbers. I have $400k in this thing personally and I brought in six of those LPs directly. They call me, not the manager. I am not the GP, I have no removal rights beyond what the LPA says, and what the LPA says is a 75% vote by committed capital to remove for cause, with cause defined narrowly enough that bad communication and missed projections probably do not clear the bar. The fund has no independent advisory board, which I should have pushed for at close. The manager is not stealing, just slow and over his head on asset management at a scale he has not operated before. I have talked to him twice in the last 90 days and both conversations were cordial and produced nothing. I am trying to figure out whether there is a real path here or whether the move is just to hold, protect the relationships I brought in, and never put another dollar with this person.

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laurenkim53laurenkim53Passive

The 75% threshold is the whole game here and you probably already know whether you can get there. Add up what you and your six LPs hold as a percentage of committed capital. If you are anywhere near that number, the conversation changes completely, because even if cause is defined narrowly the threat of a legitimate removal vote forces negotiation on reporting, on a co-GP or asset manager being brought in, on almost anything. Tampa specifically is not so distressed right now that a 48-unit with two years of missed projections is automatically terminal, which cuts both ways: the asset probably has recoverable value, but the manager also has less urgency to fix anything because he is not staring at a default.

The thing I would push on before anything else is whether the LPA has any provisions around material information rights, not just removal. A lot of LPAs that are weak on removal are actually clearer on the GP's obligation to produce financials on request, and a formal written demand, not a phone call, a letter, sometimes produces more than two cordial conversations ever will. If he ignores a written demand that is documented, that starts to build a cause record that a narrow definition might eventually accommodate. I have seen that shift a manager's behavior faster than anything else because suddenly there is paper.

The six relationships you brought in are the real exposure here and I think you already know that holding them together through a bad outcome is manageable if they feel like you were transparent and working the problem. What kills those relationships is if they find out later that you knew it was bad and said nothing. So whatever you do on the fund side, I would have a direct conversation with each of them now, not a group call, individual calls, because the ones who hear it from you first are the ones who stay.

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