Private equity's blue light special

????BC Partners is offering prospective investors a sweet deal. So why might it backfire?

????British buyout firm BC Partners is raising €6 billion for its new fund, including the offer of an "early-bird" discount for investors who subscribe to the first close. Yes, the same type of bargain most commonly associated with liver-and-onion specials at the retirement home cafe.

????As first reported by the FT (and since confirmed by Fortune), this particular special is worth 5% off future fees. Assuming a $100 million commitment and a 2% management fee, we're talking about $100,000 in savings during the first year (transaction fees already will accrue 100% to LPs).

????So why is a big-name private equity firm resorting to diner tactics? Here's how an IR pro at a rival firm explained it to me: "The hardest thing to do in any fundraise, particularly now, is to get that first close. It's a race to see who can be first to be second... and the result is often a stalemate."

????I get it. Provide an incentive for investors to rise off their hands, particularly before their attention is diverted elsewhere. It's a novel approach -- BC does not appear to have cribbed this from anyone else -- and shows a willingness to further align interests between the GP and LP.

????My concerns, however, involve both optics and implementation.

????On optics, the early-bird special seems to project weakness. My first reaction to the FT piece was: "Wow, they must be really worried."

????I heard similar thoughts from several LPs. As one put it: "I thought they had solid numbers. Not spectacular, but solid. But this would make me want to dig a lot deeper." (note: he's correct about the solid numbers, according to data from CalSTRS)

????Another LP added that the discount could serve as a deterrent to participating in the first close. "It might make me reconsider an initial bias toward investing," he said. "There are always subsequent closes, and I could fight to get the discount included there."

????This is the practical problem: BC Partners may think it's only offering this discount to first closers, but it's wrong.

????Let's assume that the new fund will not be wildly oversubscribed. Pretty safe assumption given that: (a) It's slightly larger than BC Partners' current fund, and (b) If it was going to be oversubscribed, there would be no need for such gimmicks. And let's further assume that BC Partners secures around half of its €6 billion target via the first close. Now, imagine a pension fund offers to commit €250 million in the second close, but only if it gets the early-bird discount. Is there any way BC Partners says no? (if I wasn't clear, that was a rhetorical question).

????I'm not arguing that BC Partners is being duplicitous here, or that its signals are meant to imply anything other than market realism. Instead, I'm arguing that it's being naive.