GP commitments: PE houses feel the pressure

Greg Gille
21 February 2012

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More than 80% of GPs are feeling pressure to up personal commitments to their funds, according to research by Investec.

"GPs are facing the toughest and most competitive fundraising market we've seen in years," Investec Fund Finance's Simon Hamilton told unquote". "They can't do much about their track record, the team which made the investments or to some extent their investment strategy – but they can position themselves better on the market by showing a strong commitment to their fund."

The discussion point is not whether GPs should commit 1% or 2% to their vehicles anymore, with most firms aiming for much larger personal contributions. "We have recently seen GP commitments of more than 10% in certain funds, which has proven extremely popular with investors," continues Hamilton. Abraaj and Investindustrial for instance both commit around 10% to their own funds.

That said, the Investec study also highlights that nearly four fifths of the GPs surveyed are unable or unwilling to invest larger amounts. Some fear being overexposed to a single investment (25%), while others state that they are already committed to the maximum allowed for their level in the firm (18%).

However, more than a third of the GPs surveyed say the main factor preventing them from committing additional capital to their firm's next fund is that they cannot access sufficient finance – a boon for firms like Investec, which offers loans in the £5-75m range to GPs through its Fund Finance division.

Says Hamilton: "Fundraising has slowed down considerably compared to when we started six years ago, but appetite for this service has definitely picked up in the past 12 months or so."

Larger commitments drive this in part, but Hamilton reckons that GPs also face liquidity issues: "GPs recognise the importance of personal alignment in the current fundraising market, but are often constrained by personal liquidity which restricts their ability to invest as much as they would like. They have sometimes vast amounts of money tied up in carried interest or prior investments, which has stalled to some extent because exits haven't come through at the rate that they were in previous years."