LP Spotlight: Fondinvest Capital

John Bakie: There's been a lot of talk of GPs needing to specialise to really attract LPs. Are we likely to see a move away from generalist funds in the future?

Charles Soulignac: I don't think so. Generalist funds are still very popular. The most important thing we look for in funds is having the right team in place to provide the right performance.

Catherine Lewis La Torre: Specialist funds need to be addressing geographies and sectors which can provide sufficient dealflow. I think the key is not to be too specialised, perhaps with a focus on four or five different sectors rather than being concentrated in any one area.

JB: A number of LPs have been highly critical of the 2% and 20% fees model for private equity funds. Do you think it's time for things to change?

CS: It's true that the industry needs to look at its fee model. This 2% and 20% model has been around for as long as private equity and it needs to change to adapt to modern demands. JB: Do you think recent moves to offer so called "early-bird" discounts to management fees are a move to adapt to changing pricing demands?

CLT: No, I think that reflects another phenomenon which is that some funds are finding it difficult to attract investors and want to create momentum to get LPs on board. I'm not sure how successful this is though, as some LPs may then not consider investing after a first close if they're not receiving the reduced management fee.

JB: We've seen some major fund raisings in the last few months and more are in the works. Do you think GPs are going to be able to deploy all this money and make a return?

CS: GPs are looking for a multiple, but the number of suitable companies they can achieve this with will not increase indefinitely. We could see funds running for longer periods to make the return, so going from 10 years to 12 or 14 years to achieve that multiple.

CLT: This will have a knock-on impact on IRRs. In many cases the recession and crisis have pushed back business plans by a few years, and this could threaten IRRs.

JB: We've recently seen a big increase in the number of secondaries sales in the market. Do you think this is a function of the economic cycle or are secondaries here to stay?

CS: Today there are a lot of LPs looking to sell their interests in funds. In particular, we've seen banks off-loading a lot of their assets in recent years.

However, going forward the banks will not have a lot more assets left to sell, though I think we may see more insurance companies starting to sell their interests, but in a more strategic way, in order to create liquidity for new investments.

CLT: There are a number of different drivers in the secondary market. Obviously regulation is an issue for a number of LPs, but a lot of the activity is being driven by more strategic concerns. The secondary market today allows LPs to actively manage their portfolio in a way they couldn't in the past.

There aren't many really distressed sellers out there. LPs may be looking to rationalise the number of GP relationships in their portfolios, as well as to deal with changes in regulation, but they are doing it in an intelligent way. There are very few LPs that are selling because they have to.

Paris-based Fondinvest Capital has been operating primary and secondary fund-of-funds since the mid-1990s.

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