Private equity General Partners (GPs) feel pressured to invest more of their own capital in their firm’s next fund but the vast majority are unable or unwilling to increasing their personal stake, according to new research from Investec Fund Finance (Investec).
Over eight in ten (81%) GPs questioned believe that there is an expectation amongst Limited Partners (‘LPs’) they should be investing more into the next fund1. However, over a third (35%) of GPs say that the main factor preventing them from committing additional capital to their firm’s next fund is that they cannot access sufficient finance. This is ahead of a reluctance to be overexposed to a single investment (25%) and those who say that they are already committed to the maximum allowed for their level in the firm (18%).
On average GPs are planning to personally invest approximately GBP200,000. Over a third (38%) plan to invest between GBP100,000 and GBP500,000, 10% between GBP500,000 and GBP1 million and a further 10% in excess of GBP1 million. Some 8% say they will not be investing in the next fund.
The research follows Investec’s provision of an USD8 million debt facility to Aureos Capital Limited (“Aureos”), a leading private equity fund management company specialising in investing in small and medium sized businesses in emerging markets. The three year loan facility allows Aureos to invest in its own funds, support its employee investment programme and enables the business to expand. Investec also provided a GBP14 million debt facility to the management of Clyde Blowers Capital, which supports their investment of both of their funds.
Simon Hamilton (pictured), Investec Fund finance, says: “LPs are increasingly looking for GPs’ interests to be more closely aligned with their own through a more significant investment into their own funds. We have recently seen GP commitments of over 10% in certain funds, which has proven extremely popular with investors. However, our research shows that almost four fifths (78%) of GPs are unable or unwilling to invest any more. Given this, it’s understandable that in the past year we have seen a threefold increase in lending to GPs.”
The Investec Fund Finance team focuses on the financing needs of leading private equity funds and the professionals behind them. Investec offers a broad range of financing facilities tailored to the unique requirements of the private equity sector. Typically, the loan sizes are greater than GBP5 million and can extend to between GBP50 million and GBP75 million at the higher end. The loans are usually structured against the private equity investments, management company cash flows or investor commitments.
Investec Fund Finance has continued to be one of the most active teams in the market and has closed eight transactions in the past two months, including a GBP15 million loan to F&C Capital Partners LP.
