INSTITUTIONAL INVESTOR SENTIMENT SURVEy - PEI Media

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fees institutional investor sentiment survey Should management fees be reduced after a fund’s investment period has concluded? n 90% Yes n 10% No foreword executive summary allocation • fees lp – gp relationship future investments and concerns appendix: global fundraising Source: Private Equity International Unsurprisingly, a vast majority of LPs (90 percent) believe that management fees should be reduced following the conclusion of a fund’s investment period. Management fees are intended for fund managers to cover their overhead and salary costs, generally in the range of 1.5 to 2.5 percent of the fund’s committed capital per annum, and are expected to be scaled down in the later years of a fund’s life. Many small and mid-market firms require management fees in order to support their deal teams while larger private equity firms justify their fees due to sourcing deals globally with an office presence across different regions. In addition, some brand-name firms state that their exceptional performance justifies a premium over market-rate fees. However, ILPA argues that “management fees should be based on reasonable salaries, as excessive fees create misalignment of interest”. Many fund managers are unable to afford operating with lower management fees and rather than lower their fee, choose to negotiate other concessions in order to entice LPs to invest with them. page 11 www.privateequityconnect.com
Fee breaks should be negotiated dependent upon fee level, size of fund and whether the fund is in high demand institutional investor sentiment survey foreword executive summary allocation fees • lp – gp relationship Should your institution receive a fee break as an early investor in a fund? future investments and concerns n n 64% 36% Yes No appendix: global fundraising Source: Private Equity International page 12 As a concession to growing LP demands, GPs are offering an ‘early-bird special’ on management fees to LPs who commit before a first close. 64 percent of LP respondents believe that they should receive a fee break as an early investor in a fund. For those that believe there should be a fee break, the optimal level of discount varied from 10 percent to 25 percent and some concluded that a fee break should be ‘negotiated between the parties’ or ‘fees should start at closing of capital-raising or when 50 percent of investment has been achieved’. However, fund managers risk alienating investors who are known to be unable to commit early to a fund. Recognising this, 36 percent of LPs have responded that they do not believe their institution should receive a fee break if they are an early investor in a fund. www.privateequityconnect.com
Page 1 and 2: Institutional Investor Sentiment Su
Page 3 and 4: institutional investor sentiment su
Page 5 and 6: LP Respondents Breakdown Where is y
Page 7 and 8: Allocation institutional investor s
Page 9 and 10: Over the long-term, private equity
Page 11: Co-investments provide LPs with gre
Page 15 and 16: Fees should be calculated in connec
Page 17 and 18: LPs are requesting a “Europeansty
Page 19 and 20: GP fund commitments should be a mea
Page 21 and 22: SWFs prefer to target sectors which
Page 25 and 26: A vast majority of LPs conduct due
Page 27 and 28: There is room for improvement with
Page 29 and 30: Focus on… Endowments Distribution
Page 31 and 32: Strategy Appetite institutional inv
Page 35 and 36: The prevalence of zombie funds has
Page 37 and 38: Private equity is coming under incr
Page 39 and 40: Fundraising by Strategy 150 institu
Page 41: Published in July 2012 by PEI Secon

INSTITUTIONAL INVESTOR SENTIMENT SURVEy - PEI Media

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