Coller Predicts LPs Will Shun Re-Ups
Secondary stake buyer thinks turbulence lies ahead for PE funds looking to plug holes.
December 3, 2009
Private-equity firms looking to make deals this year have had a tough time amassing debt for transactions. Coller Capital says they ought not bother looking to their LPs for any extra capital, either.
The global investor in PE secondaries reports that almost 80% of limited partners will deny PE firms’ attempts to re-up funds next year. Coller Capital said growing sentiment that PE firms’ re-up terms are not substantial, lack transparency and may contain conflicts of interest is contributing to what looks to be an LP backlash.
In North America, 28% of investors think the perception of the asset class has been damaged through the course of the recession; that number almost doubles in Europe and Asia.
The Coller Capital report noted that two-thirds of LPs have changed the way they manage private equity as a result of the recession.
“When we look back in a few years, I think we’ll see today’s upheavals as a significant moment in the maturing of an industry,” said Jeremy Coller, chief investment officer of Coller Capital.
An Institutional Limited Partners Association report released in September called for better practices involving governance, transparency and partnerships.
LPs and PE firms have increasingly clashed with the onset and gradual recovery from the recession; Norwind Capital was pushed away from one potential deal, Pensions & Investments reported earlier this year, after LPs objected to its planned platform launch in the fertility space. TA Associates, wrapping up its $4 billion fund, made concessions in the way of lower carried interest and a provision that redirects transaction fees to offset limited partner management fees.
PAI Partners was forced to redeem nearly half of its most recent fund after a very public (and ugly) power struggle resulted in the firm tripping its key-man provision when heads of the investment firm departed.
Believers in second market investments took note when SecondMarket, a New York-based illiquid assets marketplace, secured funding earlier this year from New Enterprise Associates and SVB Financial Group. SecondMarket continues to seek out investors.
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