Chapter 7 - The Money Behind the Money

G2G Chapter 7 - The Money Behind the Money

The Money Behind the Money

LPs, GPs, and the economics that drive every deal. CHAPTER 7 OF 13 SBCI - Canary Wharf - 22:40 Trace is alone on the 14th floor. The cleaning crew passed an hour ago. Her desk is a controlled disaster: two monitors, four tabs of the Königshof model, a half-empty flat white gone cold. She is staring at one cell in the Sources & Uses table from last week's LBO analysis. Row 3. "Equity - Skarn Capital Fund III." The number: €55,000,000. She has modelled the debt. She has stress-tested the cash flows. She has sensitised the exit multiple. But she has never once asked the obvious question. She picks up her phone and texts Le Pitch. Trace "Quick question. The Skarn equity cheque - €55m. Where does that actually come from?" Three dots appear. Then disappear. Then appear again. Le Pitch is composing something longer than "Google it." Le Pitch "From their fund. Skarn Capital Fund III. €1.2 billion committed." Trace "Committed by whom?" Le Pitch "Now you are asking the right question. Come to the office early tomorrow. I will draw you a picture." Every investment bank pitch to a financial sponsor begins with the same unstated assumption: that the sponsor has money. But money in private equity is not a bank balance. It is a web of commitments, structures, incentives, and economics that determine which deals get done, how they are priced, and why the exit matters as much as the entry. The Architecture of a Fund Fund Mechanics

Limited Partners and General Partners

A private equity fund is not a company. It is a limited partnership - a legal structure with two classes of participant. Limited Partners (LPs) provide the capital. They are pension funds, sovereign wealth funds, university endowments, insurance companies, and family offices. They commit money - often hundreds of millions - with the expectation of returns that exceed public markets over a 10-year horizon. They have no say in which deals get done. They are, by design, passive. The General Partner (GP) is the fund manager. Skarn Capital. They find the deals, negotiate the terms, manage the portfolio companies, and execute the exits. They make every decision. In return, they earn fees and a share of the profits. Skarn Capital Fund III has €1.2 billion in commitments from 14 institutional LPs. The largest is a Dutch pension fund (€180m). The smallest is a German family office (€25m). None of them chose Königshof. They chose Haircut. Fund Mechanics