As part of the research for our newly-released publication, the 2010 Preqin Fund Terms Advisor, we surveyed 50 institutional investors in May to find out their views on private equity fund terms and conditions. Nearly 75% of respondents said that they have witnessed changes in the prevailing private equity fund terms during the last 12 months. The majority of these limited partners (59%) cited the structure and level of management fees as an area in which alterations have occurred.
The rebate of deal-related fees is an area that appears to have changed more in the last 12 months than in recent years, with 41% of private equity investors stating that they have witnessed changes to this aspect of fund terms in the last year. A number of respondents indicated that they were receiving a greater share of transaction fees, while one Germany-based insurance company said that transaction costs “have reduced as the GP has taken on more of it.”
We asked survey participants to rate the relative importance of individual fund terms and conditions on a scale of one to five (with five considered to be of high importance). Achieving an average rating of 4.4, the issue of whether carried interest is distributed on a ‘whole fund’ basis or a ‘deal-by-deal’ basis has a high level of importance among limited partners. Almost as important for private equity investors, with a rating of 4.3, is the size of a GP’s commitment to a fund, suggesting that investors appreciate the show of faith demonstrated by fund managers that are prepared to put a significant amount of their own capital to work.
The guidelines that were published by Institutional Limited Partners Association (ILPA) in September 2009 received considerable backing among survey participants. A considerable 67% of investors told us that they agree with the entire proposal, which acts as a best practice document aiming to address and improve the key issues of the alignment of interests, fund governance, and transparency to investors. A further 24% of investors agree with the bulk of the proposal and 71% of investors indicated that they would consider not investing in a fund if the manager of the fund did not adhere to the ILPA Private Equity Principles.
Some of the results of this survey are presented in the June edition of private equity Spotlight, while the full survey results are published in the Preqin 2010 Preqin 2010 Preqin Fund Terms Advisor publication. Further information on private equity investors can be obtained through our online database, Investor Intelligence .