One of the many effects of the credit crisis on private equity has been the rearrangement of interests between GPs and LPs when it comes to the fund structuring of fund terms and conditions. According to leading placement agents, private equity fund terms and conditions have been significantly affected with 80% of them mentioning that the balance of power has now shifted in the LPs’ favour. Specifically, many believe that private equity vehicles with non-standard fund terms and conditions that were unfavourable to the LPs are now having to readjust in line with the market.
When asked which areas of private equity fund terms and conditions have been affected most, three topics came up consistently: how the various fees perceived at the fund level are split between LPs and GPs, how easy it is for an LP to exit the private equity fund and finally, up to what fund size can a private equity fund manager charge the 2% industry standard management fee. However more than half of the placement agents surveyed also mentioned that LPs are still ready to pay higher fees for funds that outperform the market.
For more information on private equity fund terms and conditions, please see Fund Terms Advisor Sample Pages