Un-FEESable expectations?

05 October 2009

Tweet
Facebook
LinkedIn
Google plus
Send to

Whatever the state of the market, there will be qualms over fees paid to GPs. When the markets were tough in the early naughties and Europe's buyout market was gaining traction, a few brave big guns started raising ever bigger funds, meaning their fees grew proportionally. As the exits rolled in from said funds - many of which were homeruns (remember the yellow pages bonanza?) - the demand for such funds picked up pace and exceeded supply in the market. Basic economics ensued: prices went up. And so it was that the once almighty LP lost his place at the top of the totem pole

Now the power is back in the hands of the LPs (those with cash). CalPERS is among a pack of investors looking to improve transparency and reduce fees with its investors. Does this ring a bell? Of course. But now that GPs are being squeezed by investors with liquidity issues, they may have to listen to LPs who still have capital. Some placement agents are reporting LPs requesting "expense reports" from GPs to account for the vast sums of money being paid.

Some big players are taking heed. TA recently reduced its carry in its latest fund - admittedly from a lofty 25% to the standard 20% - with others reportedly following suit.

Surprisingly, not all are admitting that it's time to adjust their fee structures. One UK mid-market fund rather pompously raised its management fee from 2% to 2.5% for its latest fund, which only recently launched. The GP clearly deemed its investor base more loyal than it was: the result was a halving of the initial fund target - and some investors say even that now looks lofty.

LPs are exerting pressure - more than normal - through The Institutional Limited Partners Association (ILPA) for things to change. Given the shake-out already underway in the industry, it is reasonable to assume ILPA's success will be marked.

Yours sincerely,

Kimberly Romaine

Editor-in-chief, unquote"

Tel: +44 20 7004 7526

kimberly.romaine@incisivemedia.com