Private Equity return expectations sag

3 responses

  1. AT says:

    Tiered mgmt fees don’t/wouldn’t hurt either. Compare a 50M Fund that makes 5 investments to a 500M Fund that makes 5 investments; the work load isn’t 10X but the 2% mgmt fee scales from 1M/yr to 10M/yr. We are starting to see more and more funds in the market that step their mgmt fee down to 1.5-1%. i.e. 2% on the 1st 100M, 1.5% on the next 200M, and 1% thereafter. Also, keep in mind that you can broadly put PE Managers into 2 categories. 1) those who have a significant amount of their own skin in the game, and 2) those who don’t. Guess which ones perform better?

    note: “significant” depends on the individual.

  2. Alpha says:

    I think a tiered management fee that charged 0.5% of committed capital and 1.5% on deployed capital would be a better solution.

    Also, I think you’re going to see a lot more large players bring PE in-house, similar to what you’re seeing OTPP doing. Where they get hands-on with stuff they know (like CFM Corp), bring onboard LPs in areas where they need help (Providence playing a lead role in the BCE deal), or farming it out completely in areas with no expertise (like forming the Actera Partnership to handle investments in Turkey).

  3. AT says:

    Perhaps… but you need the GP to be able to keep the lights on for the first year or two and not have all their talent jump ship.

    Probably and/or just see expansion financings until cheaper debt comes back or valuation expectations come down. Actera is really interesting. With a modest commitment from us now 50 % Canadian money! Amazing!

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