When entering into a limited partnership agreement, balance must be struck between the GP and the LP to ensure their interests are aligned on a wide range of issues, from fee levels and transparency to responsible investment. As competition in the fundraising market increases, investors have become more demanding regarding the fund terms they expect to see from private capital fund managers. This has made it more important than ever for GPs to get the balance right in the terms offered to LPs.
As shown in the infographic, terms and conditions can be crucial in an investor’s decision to commit capital to a fund. It is important for GPs to pay attention to the fund terms with LPs, as fund terms have influenced decisions for 85% of investors.
Fund terms can be a source of conflict within the LP/GP relationship, and setting competitive terms can be a tricky task for GPs in private markets. The opaque and confidential nature of private capital investment means that fees are rarely disclosed outside of a fund and, as such, it is difficult to benchmark against other GPs and the wider industry.
This chart shows the main areas in which investors believe the alignment of interests between LPs and GPs could be improved. Perhaps unsurprisingly, fees – and particularly management fees – are one of the most contentious areas across all private capital asset classes. Greater transparency is also high on the list of demands from LPs.