More “no fault divorce” clauses among signs that private equity investors gaining negotiating power
Aug 25th, 2009 | Filed under: Institutional Investing, Private Equity, Today's PostBy: Konstantin Danilov, CAIA, AllAboutAlpha.com Editorial Board
A recent survey of institutional investors done by London-based Preqin (Research Report: Fund Terms After the Crash) is indicating that a new trend is emerging in private equity investing. After a period of several years during which investors slowly conceded more and more negotiating power to the GP, the balance of power has began to shift back to the LPs. This is not surprising, given the developments over the past year and the current investing environment. Many investors have begun to question whether private equity is really a unique asset class with excellent diversification benefits, or just a form of extremely opaque, highly leveraged equity investing. Further, the fundraising environment remains highly competitive as many potential investors are facing an unprecedented liquidity crunch, and have neither the ability nor the willingness to invest in new funds.
Tipping the Scales
As the aura surrounding private equity managers began to fade in late 2008, investors began to reassess the lenient terms and conditions granted to GPs during rosier times. While little could be done regarding existing funds, new offerings provided prospective LPs with ample opportunity to seek more favorable terms and conditions going forward. It seems that a significant amount of institutional investors were able to take advantage of this opportunity; the survey result shows that 43% of respondents felt that the balance of power in negotiating new fund terms and conditions has shifted towards the LP during the past six months. More…
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