The relationship between fund managers and their investors – particularly as regards governance, terms and conditions – was a commonly raised, if not universally agreed upon, topic at the British Venture Capital Association Summit in London Wednesday.
Limited partners trumpeting the need for better alignment of interests included AlpInvest Partners' managing partner Wim Borgdorff, The Wellcome Trust's chief investment officer Danny Truell, and Robert van Schaik, head of private equity and infrastructure for MN Services, a £61 billion Dutch pension administrator.
Van Schaik noted that discussions about improving governance should not just be limited to fund managers. Greater transparency among investors – for example, disclosing for which fund managers they hold advisory board seats or hold stakes in the management company – would benefit the whole industry, he said.
Deal and management fees were one of the major talking points among speakers and panellists. Truell said the Wellcome Trust was “quite happy to pay people for results” but that transaction fees shouldn't be such a prominent feature of the industry.
Fees may or may not need adjusting.
Asked during a panel session if the tradtional terms and conditions associated with limited partnerships were bound to change, Jonathan Blake, the senior partner at law firm SJ Berwin credited with developing the LLP structure, said “the basic terms and conditions have remained remarkably stable” throughout past boom and bust cycles. He would not be drawn further into the debate, saying “fees may or may not need adjusting”.
Reduction of management fees and putting deal fees 100 percent “toward the benefit of the fund” are among the initiatives in the ILPA Principles, a set of terms-and-conditions best practices unveiled last month by the Institutional Limited Partners Association. Its guidelines include that investment periods should automatically be suspended when key-man clauses are triggered and that LPs should first be repaid all contributed capital plus a preferred return before general partners begin to receive carried interest.
Borgdorff said AlpInvest is a “wholehearted supporter” of the ILPA Principles, which he characterised as guidelines that will help drive discussion and action constructive for the private equity industry, but “not in a set-in-stone, 10 Commandants kind of way”.
Dominique Senequier, founder and chief executive of AXA Private Equity, noted how important it is that GPs take their investors' views into consideration as private equity has “no future without LPs”.
She referenced a recent study by Credit Suisse First Boston, which she said found that LPs, on average, were already reducing re-ups by 84 percent. “Cancelling one-third of relationships is quite a big number,” she said. “Their current focus is to reduce [commitments] every time it is appropriate,” she added, noting more and more LPs, according to the survey, were asking for terms including no-fault divorce clauses.