No fundraising

Greg Gille
26 October 2012

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Fundraising often comes on top of the list of the most pressing issues affecting GPs, with many painting the picture of an incredibly tough market where only the best will be able to see funds to a final close т and then only at the price of substantial concessions to LPs. SJ Berwin partner Sonya Pauls remains optimistic however, but warns that flexibility is a must for GPs.

A survey of GPs having recently closed a fund, conducted by unquote" over the summer, already showed positive findings despite talk of apocalyptic investor behaviour. A majority of respondents notably reported existing LPs re-upping and even increasing ticket sizes.

Sonya Pauls, a partner in SJ Berwin's fund structuring practice, agrees that the image of a dire fundraising market needs to be nuanced somewhat. "The doom and gloom that we hear about doesn't really correspond to what we're seeing on our desks," she says. "Contrary to two or three years ago, we're not seeing any kind of distressed fundraising efforts on the ground, especially in the DACH region. Even VC funds are managing to reach closes – some take longer and some need to be a bit more creative in accessing capital, but I'm not worried overall."

One of the biggest concerns among European GPs is the effect the ongoing eurozone crisis is having on foreign investors – and US-based LPs in particular. Again, Pauls stresses that the opinion of a few vocal investors doesn't necessarily reflect the big picture: "We find that those US investors that know and understand Europe – its diversity and the potential that the various regions of Europe have – are not shying away from investing on the continent."

That said, Pauls does warn that not all players will fare equally – a fact highlighted by the speedy closes achieved by some PE houses in recent months and the disparities witnessed in terms of fee arrangements. "There is a really strong bifurcation at play, but we mainly see it when it comes to bargaining power, terms & conditions, the time it takes to actually close a fund, and the LPs that you pick and choose from," she notes. "Those funds that are in the top decile are greatly advantaged – since many LPs are reducing the number of their relationships, everyone wants to access those GPs even way before they officially start their fundraise."

Although LPs recently interviewed by unquote" highlighted that the shifting balance of power in the LP/GP relationship was allowing them to be more demanding when it comes to terms & conditions, the more successful managers can indeed get away with very favourable arrangements. "We've recently worked on a few fund closes where we were able to really tweak the terms in a highly management-friendly manner – demand still dictates terms," Pauls says, mentioning the example of a 50% carry on a specific fund.

But Pauls believes fund managers must be lucid with regard to their actual attractiveness, and those that can't compete with the top players need to be particularly creative in order to stand out. "You have to work much harder at your USP. How do you differentiate yourself from other GPs that are not in the top decile group?" she advises. "We are seeing an increasing focus on sector specialisation and operational value added, for instance. We are also witnessing GPs repositioning their strategy to collaborate more closely with big players in a particular industry, notably on the VC side."