Key Takeaways

  • Institutional commitments bind LPs and GPs for a decade, making manager terminations rare, emotionally taxing, and operationally painful.
  • Erlina Yeo Terwelp of Columbia Investment Management Company targets rapid fund size expansion as the primary mathematical reason to cut a private equity manager.
  • Strategy drift happens when GPs chase fee-generating assets under management over net returns, outgrowing the deal size and pricing inefficiencies that produced historical alpha.
  • Partnership turnover and skewed carry distribution signal end-of-lifecycle decay, warning allocators that top performers are leaving while retired founders hoard carry.
  • Terwelp considers factual misrepresentation a non-negotiable red line that terminates the LP-GP relationship on the spot.

Erlina Yeo Terwelp reserves manager terminations for days when she has space to absorb the blow. “Breakups are the hardest thing in this industry,” says Terwelp, Managing Director at Columbia Investment Management Company. “I have to do them on days that I know I can be sad. It is tough, especially in a private side, when you spend a lot of time with somebody and you expect to be with them for 10 years.”

Working under Chief Investment Officer Kim Lew, Columbia directs its endowment across private assets with an emphasis on partnership longevity. Even so, allocators often delay the axe longer than they should. As Terwelp puts it, “Some of the mistakes that I've made in the past amongst many is when you stay on the bus for too long. That can be hard.” When an institutional endowment walks away from a private equity firm, the decision traces back to three specific breakdowns.

The Mathematics of AUM Versus Net Returns

A manager termination rarely stems from a single bad quarter. Instead, simple arithmetic tied to asset growth drives the decision. When a GP produces top-quartile performance in lower-middle-market buyouts, institutional capital rushes in. If the firm triples its fund size on the next vintage, its investment playbook breaks.

“Usually, the biggest reason is the idea that we think that they're in a different strategy, fund size increases that go way beyond what we feel is appropriate for the strategy,” Terwelp explains. “That's a mathematical one. That's more of, are you now searching for AUM versus returns?”

A buyout shop built to acquire founder-owned companies with $8 million of cash flow cannot deploy a massive pool of capital in that same sandbox. The GP faces two bad choices: write dozens of small checks and stretch deal teams thin, or move upmarket to buy larger companies. In that upper bracket, proprietary deal flow dries up, broad auctions take over, purchase multiples increase, and financial engineering takes precedence over operational improvements. The manager enters a different arena where past execution provides zero competitive edge.

Carry Imbalances and Lifecycle Decay

The second breakup trigger comes from generational decay inside the partnership. Private equity firms suffer slow deaths when founding partners refuse to transfer economics to the mid-level partners who source and execute the most profitable transactions.

“The second reason is sometimes we feel that the manager's life cycle is towards the end,” says Terwelp. “You have a lot of turnover. You have carry that's allocated in ways that we don't think reflects the talent that's in your organization.”

When semi-retired founders hoard 70% of the carried interest, the principals creating value walk out the door. The resulting turnover drains execution capabilities. An institutional allocator committed to a ten-year vehicle will not back an organization where junior talent flees and compensation reflects past seniority rather than future returns.

The Absolute Line on Factual Accuracy

Allocators can tolerate difficult market conditions and portfolio markdowns if the underlying thesis holds. Deception is another story. Terwelp views factual inaccuracy as an immediate termination event.

“The last reason, and hopefully the reason that happens the least, is if we feel that the manager, this is a red-flag reason, has said something to us that was not accurate,” Terwelp says. “Honesty and transparency and trusting your manager is such an important piece of this relationship.”

Endowment allocators expect negative surprises and delayed exits in private markets. What they refuse to accept is manufactured spin. When a GP conceals writedowns, misleads LPs about senior departures, or exaggerates deal pipelines, the trust vanishes instantly.

Why It Matters

Terwelp's criteria point to a harsher underwriting standard as cash distributions remain thin across private markets. Institutional LPs are actively consolidating manager rosters, using aggressive fund expansions and senior carry hoarding as screens to cut ties and concentrate capital with disciplined, aligned operators.