Private equity fund terms and conditions have drawn a lot of attention from institutional investors in the past year following the 2009 release of the ILPA Private Equity Principles, which set out a series of preferred terms. In order to assess current investor attitudes to fund terms, Preqin surveyed 50 prominent institutional investors in private equity funds during May 2010.
Key findings include:- The mean management fee for new buyout funds (those of a 2010 vintage or yet to hold an initial close) seeking $1 billion ormore in commitments is 1.59%, down 32 basis points from its peak for vintage 2008 funds of 1.91%.
- The mean management fee for new real estate funds seeking $1 billion or more in total commitments is 50 basis points downfrom its peak for 2007 vintage funds, now standing at 1.25%.
- The mean management fee for the latest distressed private equity funds seeking less than $500 million in commitments is1.82%, down 24 basis points from the average for 2008 vintage funds of 2.06%.
For more information on the 2010 Preqin Fund Terms Advisor, please visit: www.preqin.com/fta
Comment:
“Private equity fund terms and conditions have increasingly moved into the spotlight in recent months with many investors taking the opportunity to push for more investor-friendly terms in this challenging fundraising environment. The balance of power in negotiations between GPs and LPs is clearly shifting: a considerable 81% of respondents to Preqin’s recent survey felt they were able to wield more influence over negotiations of fund terms and conditions in the past year than they have previously. Indeed, 71% of investors reported seeing changes in prevailing terms in the past year that favored the investor in areas such as management fees and the proportion of deal-related fees rebated to investors. Despite these changes, many investors intend to push for further concessions and 38% anticipate seeking to renegotiate fund terms with their existing fund managers in the coming year. Fund terms and conditions look set to remain an important area of focus for investors in the year ahead and many still feel more can be done in this area to improve the alignment of interests, something GPs should be mindful of when preparing for their next fundraise.”
Helen Kenyon – Manager, Investor DataComment:
“Feedback received by Preqin from investors saying they have seen shifts in areas such as management fees is backed up by thechanges seen by Preqin in the latest fund PPMs. The average management fees have decreased the most for the largest privateequity funds, but fees are significantly lower now than they were at the top of the market across many fund types and sizes. Otherareas of fund agreements are also under scrutiny from investors; for example, the mean share of transaction fees rebated to LPs bythe latest funds is slightly up from last year and 2008 – a trend that may continue in the future.”
Sam Meakin – Managing Editor of the 2010 Preqin Fund Terms Advisor