unquote" summit: 75% of historical LP base impacted by regulation

John Bakie
22 September 2011

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Greg Gille reports direct from unquote's 20th anniversary private equity summit in London.

Speaking in front of the delegates assembled at the Millenium Hotel this morning, EVCA secretary general Dorte Hoppner highlighted the impact of regulatory changes on private equity's traditional investor base.

"Three quarters of our historical LP base is or will soon be impacted by new regulation," she stressed, referring to the combined effect of AIFMD, Basel III, Solvency II and revised pension fund directive IORPD. "This seems to go against the EU pledge to support innovation, as PE investments are clearly proven to be driving the economy," she added.

Hoppner noted that with much of the AIFMD negotiations now over, the industry should come to terms with it and embrace its regulated status. However, she pointed out the effects of other upcoming regulation efforts on the fundraising landscape: "Now we are concerned about regulation at the LP level, which is hammering an already illiquid asset class." With banks, insurance companies and pension funds bracing themselves for the changes to come, Hoppner gave delegates a glimpse of the reshuffle: "We could see a new LP base increasingly composed of family offices, sovereign wealth funds and high-net worth individuals," she said.

Having updated delegates on EVCA's ongoing efforts on the AIFMD front - including the presentation tomorrow of a final response to the third country rule - Hoppner noted that the industry itself had a stake in changing the way it operates. "Regulation came partly as a consequence of our historical lack of communication", she warned. "But promotion cannot be a top-down effort coming solely from the trade bodies. Integrated communication should be a part of the investment process - GPs should engage with employees of portfolio companies, the media, and policy makers."

Regulation is only one of the hurdles GPs on the fundraising trail have to bear in mind, and firms that closed successfully this year were at the summit to discuss their respective experiences. Montagu director Vince O'Brien noted that communication with LPs is more important now than ever: "We must give them as much info as possible, grant as many face-to-face meetings as needed, and provide prompt responses to information requests."

Pantheon principal Francesco di Valmarana concurred, and stressed that transparency and trust were two key aspects of his relationship with GPs: "What are you going to do with our money? How are you going to do it? You should also update us on all relevant developments happening within your portfolio. All of this increases our level of confidence."

In keeping with the issue of transparency and visibility going forward, O'Brien also highlighted that LPs are increasingly paying attention to the teams themselves. "There is great concern about succession issues and team dynamics," he said. "This may have been prompted by recent developments with some teams," he added, before warning delegates that ongoing macro-economic turmoil was going to be a major issue going forward: "I wouldn't want to be fundraising at the moment, it is probably going to be more difficult now than it was a year ago."

Garrett Curran, a partner at Growth Capital Partners, nevertheless concluded on an optimistic note: "If you have a good story to tell and support from your key LPs - which you build through good communication - your fundraising process should go a lot smoother."