Three-Quarters of GPs Need Support to Meet Investors’ Co-Investment Expectations

Posted: 7th October 2014 11:38

An in-depth study published today by Investec Fund Finance reveals an industry confident in its future but needing to tackle issues ranging from compensation to the pressure to commit more personal wealth to new funds.

Investec’s annual GP Trends survey of senior private equity professionals, now in its fifth year, found that levels of satisfaction have significantly improved, with 82% saying they were at least as satisfied with their career than they were a year ago, with over half more satisfied. This compares to 2013 figures which showed just 38% were more satisfied. Nearly four out of five firms said they expect to be fund-raising in the next 12-24 months and, of those, over 60% said the fund would be larger.

Furthermore, three-quarters of General Partners in private equity firms (GPs) revealed that they expect to receive future income from carried interest in the funds they manage and this “carry” would either meet or exceed their expectations.

Despite improved confidence, the survey highlighted the importance of maintaining staff morale amidst a period of significant generational change. A total of 18% expect to leave their firm in the next 12 months, with a further 15% unsure whether they will remain at their firm in this period. Detailed questioning of leading players in the private equity market focussed on the importance of nurturing talent, planning for succession and correctly structuring compensation so that more junior members felt incentivised through carried interest payments.

Over 20% of respondents said they expect their teams to have to commit more than 3% to their firm’s next fund, compared to the traditional 1-2%, as investors have required increased alignment from GPs. This will be a challenge with three-quarters of GPs anticipating that they will need resources above and beyond their carry to fund their personal commitment.

Simon Hamilton, Global Head of Investec Fund Finance, says: “As the industry adapts to the post-crisis environment, it is clear that investors want greater alignment with the GPs who manage their money. One of the biggest issues is how they fund this commitment, not just at a senior partner level, but throughout the firm. Over the past 12 months we have seen a significant increase in GPs speaking to us about co-investment funding”.

The Investec GP Trends study has been published today and is available to download here.



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