Matt Burk's fourth fund had $80 million in assets and a $50 million credit line when banks stopped renewing it in 2011, even though he met every covenant and payment. He had to wind down the fund. Most fund managers, he says, plan for growth but not for how to shut down when markets turn.
I had a fairly good-sized fund. It was about $80 million in 2008 through really all the way prior to the Great Recession. We launched that in late '07, which is my fourth fund. That was the first fund that I ever really used leverage. We had a $50 million line of credit that had a 3-year term on it. And with the banks not really wanting to be in that business anymore in 2011, even though we met every covenant, made every payment, had crazy good cash flow coverage and everything else. They just wanted out of the business across the board. So they failed to renew the line, which forced me to have to wind down that fund. That was the first time I ever had to wind a fund down. And that whole experience, when people set up a fund, everybody's optimistic and of course they're going to grow it and so forth. And nobody really thinks about what's going to happen 3 or 4 or 5 or 10 years from now when I actually have to wind this down, let's say in a not very good market.
