GPs feel heat as LPs raise fund contribution expectations

Investec found almost half of LPs would expect a fund manager to make at least a 2% contribution to their next fund. One in ten LPs were even more demanding, asking for a GP to invest as much as 7%.

Making personal contributions to funds is nothing new, but with many fund managers having experienced several years of tough investment conditions, there has been uncertainty over whether they would earn carry from their current vehicles.

The need to contribute to future funds means earning carried interest is vital for GPs looking to raise a new vehicle and 70% say they rely on carry from their current fund to invest in the next. Fortunately, around 80% expect to earn carried interest on their existing vehicle, according to Investec.

Simon Hamilton of Investec Fund Finance said: "Creating alignment of interests between investors and managers continues to be an important topic. Our research backs up the growing trend we have seen over the past 12 months where GPs are looking to create ways to commit more money to their own funds."

The majority of LPs surveyed are expecting to raise a new fund in the next two years, and just 3% have no plans to raise future funds. Additionally, a large majority of over 80% expect their next fund to be the same size or larger than their previous vehicle, despite economic uncertainty.

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• Topics
• Funds
• Fundraising
• Investec