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Challenges in the LP/GP Relationship

by

December 9, 2011

To give European PE professionals some insight ahead of fundraising next year, Acanthus published details of its sixth annual survey. It revealed that the relationship between LPs and GPs remains as challenging as ever.

 

According to Acanthus’s LP-GP Survey 2011, there is little agreement on terms and conditions and on the level and quality of communications to investors. It is important to address this say the authors because mid-market firms want to raise more than EUR 50 billion in Europe over the next 24 months.

 

Key Points, According to Acanthus

– Almost all LPs are bothered by fees, 97 % agreed or tended to agree that current fee structures cause a divergence of interests between the parties, while just 22% of GPs concurred.

– Just 15% of limited partners rated general partner communications as “good”, compared with 81% of GPs. None of the GPs thought their communications were unsatisfactory.

– Only 15% of GPs rated LP feedback as “good” in terms of clarity and effectiveness, emphasizing that the dialogue has room for improvement from both sides.

– Both LPs and GPs agreed strongly that the quality of communications was an important factor in investment decisions, which is ironic considering the previous two points revealed by the survey.

– On a more positive note, the research found that only around one in ten LPs and GPs thought the overall relationship was weak, while a majority of LPs (58%) believed the IR process had improved over the past year.

– 76% of LPs agreed that GPs should invest more in their own funds in order to promote a greater alignment of interests – just 22% of GPs agreed, but there is evidence that their opinion is shifting in line with the LP view

– 70% of LPs think they bring more than just money to the relationship – but the majority of GPs disagree

– Just 3% of LPs thought investor protection clauses were strong, while most GPs (78%) thought they were adequate

– Over 25% of GPs rated LP feedback as “poor” in terms of clarity and effectiveness, while only 6% of LPs agreed – both parties thus appear to overrate the quality of their communications.

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