LPs Ride the AI Boom While Grappling With Faster Fund Cycles
Limited partners are thrilled by soaring AI valuations but warn that rapid fund pacing could become a concern.
AI Titans Dominate LP Portfolios
Limited partners, the investors that supply capital to venture firms, are currently “feeling great” as valuations for OpenAI and Anthropic have surged dramatically.
Historically, LPs spread their commitments across many managers to balance risk and reward. Today, however, “nearly everyone has piled into the same two companies on the way up, often inside the same venture firm,” even though venture norms usually discourage overlapping investments.
Despite the concentration, the LPs interviewed are not voicing complaints; they anticipate a “bonanza” from these positions.
Insights From the Front Lines
I spoke with Beezer Clarkson of LGT Capital Partners, a Zurich‑based diversified asset manager, and Amit Bhatti of TrueBridge, a Chapel Hill firm focused solely on venture. Both conversations were edited for length.
What the Investors Feel
Beezer Clarkson: “It’s very busy, but I wouldn’t say it’s scary… I love venture, so I find the chaos fun.” He notes that decades of experience make the current cycles feel less daunting.
Amit Bhatti: “If anything, it’s exciting… all the attention is focused on this corner of private equity.” He frames the AI surge as a moment that puts venture in the spotlight.
Concentration vs. Diversification
Both managers acknowledge that their funds now hold the same AI brands, multiplied across the various funds they back. Bhatti describes the concentration as typical of a “power law business,” noting that mature funds often consolidate into a few big names such as Databricks, SpaceX, Stripe, and now Anthropic and OpenAI.
Clarkson adds that early‑stage funds still see a “diversity of opportunity sets” because they are not writing the large late‑stage checks, which keeps some diversification alive.
Accelerating Fund Pacing
Traditional fund cycles of four years have compressed to three, two, and now as short as 18 months. Clarkson observes that “funds come back on one‑year pacing, which is fast,” and warns that it could be a worrisome sign.
Bhatti echoes this, saying the usual 24‑ to 36‑month window has shifted to “12 to 18” months for some funds. He notes that larger round sizes—such as Anthropic’s “giant quantum of capital”—push managers to allocate a larger share of a fund to a single company, accelerating the pace.
Both describe the situation as a “yellow light,” indicating unease about the speed but not an outright panic.
Changing Deal Dynamics
When the last acceleration in pacing occurred, it was driven by “zero‑revenue crypto moonshots.” Today, the surge is linked to companies that can jump from “zero to $100 million in revenue,” a growth trajectory that was “totally unheard of before.”
Looking Ahead
LPs remain enthusiastic about the upside from AI investments while keeping an eye on the rapid deployment of capital. The blend of concentration in a few high‑profile AI firms and faster fund cycles creates a mixed landscape of excitement and caution.
