INSTITUTIONAL INVESTOR SENTIMENT SURVEy - PEI Media

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The optimum hurdle rate should equate to a risk-free rate of return institutional investor sentiment survey foreword Is the standard eight percent preferred return/optimum hurdle rate correct? Just right – If it ain’t broke, don’t fix it Too low executive summary allocation • fees lp – gp relationship future investments and concerns appendix: global fundraising Too high % Source: Private Equity International 69 percent of global LPs believe that the standard preferred return/optimum hurdle rate is just right. In the words of some institutional investors, “the problem is not the hurdle, it is the catch-up” and that the hurdle rate “should be viewed like an index that changes with market conditions.” Simultaneously, nearly 25 percent of survey respondents believe that the eight percent preferred return is too low as the “risk/return between parties to the transactions is not in balance” and “managers are taking too much.” Global LPs also have a view that the eight percent hurdle rate is based upon the western model of private equity and in emerging markets can be viewed as too low given that these returns are possible with lower risk in more liquid debt products. Few LPs believe that eight percent is too high with one LP responding that “the market is moving to seven percent.” page 15 www.privateequityconnect.com
LPs are requesting a “Europeanstyle” waterfall distribution structure institutional investor sentiment survey foreword executive summary allocation fees • lp – gp relationship future investments and concerns appendix: global fundraising What is your institution’s preferred method of carry/carried interest? Deal-by-deal Whole fund No preference % Source: Private Equity International page 16 The vast majority of surveyed LPs (86 percent) prefer carried interest applied to the whole fund as opposed to a deal-by-deal basis. Increasingly, LPs are requesting for GPs to setup “European-style” waterfall distribution structures which entail LPs being paid all of their committed capital, plus a preferred return, before the GP begins to collect carried interest. The “European-style” distribution scheme has been endorsed by ILPA as the preferred structure for carried interest. Over the recent period of harsh fundraising conditions, many GPs are acquiescing to LP demands with GSO Capital Partners collecting carried interest only after LPs are paid back 75 percent of committed capital plus an 8 percent preferred return. CS Strategic Partners V goes one step further with a distribution scheme which not only includes all committed capital, but also all fees and fund expenses plus the 8 percent preferred return, before collecting carried interest. 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 and 12: Co-investments provide LPs with gre
Page 13 and 14: Fee breaks should be negotiated dep
Page 15: Fees should be calculated in connec
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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