From recession to concession

However, in contrast to a crisis, which can manifest seemingly out of the blue, recovery can come at a painstakingly slow pace.

On the other hand, the growing pains endured in recent years have generated some positive results. The industry appears to be taking the opportunity to refine the private equity model and ensure it works for all sides and at all stages.

One of these changes has come at the LP-GP relationship level. GPs are facing a new reality as LPs become increasingly selective and approach negotiations with more authority. Recent consolidation in the fund-of-funds segment, namely between Hermes and Gartmore, will doubtless result in the creation of more powerful investors, which should reinforce their newfound strength.

For proof of this new hierarchy, one should turn to Apollo Management, the latest GP to concede to LP demands, which agreed to a relationship restructuring deal with CalPERS to cut fees equating to $125m over the next five years. Although the fee covers Apollo’s current fixed income funds, the phenomenon is reflective of broader market trends. In April, Blackstone decided to give back 65% of transaction fees to investors, up from the traditional 50%.

After years of GPs and LPs operating under a standard relationship model, asset managers are beginning to balk under the LP pressure for increased transparency and fee reductions as institutional investors become more aggressive in cutting costs. But despite these changes, what we are witnessing is not so much a battle of wills as a constructive dialogue approached by both sides. After all, the secret to symbiotic relationships is cooperation.

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• Topics
• Industry
• LPs
• GPs
• Southern Europe
• CalPERS
• Blackstone Group
• Apollo Management