As Consider a typical scenario in private real estate: A general partner (GP) comes back to market to raise Fund IV. Their predecessor vehicle, Fund III, is three years into its life and boasting an impressive 16 percent internal rate of return (IRR). The GP sits across from an existing limited partner (LP), presents the pristine pitch deck, points to the early markup, and confidently asks for a re-up.
A week later, the LP passes.
The GP is stunned. They assume the LP didn’t like the market conditions or that they lost out to a competitor with a 18 percent IRR. But the truth happening behind closed doors is completely different. The LP loved the real estate strategy, but their institution was hit by the denominator effect and a tact
