Fund managers believe that they must demonstrate personal confidence in their ability to perform by making greater dollar contributions to their own funds, a report suggests.
The Fund Formation and Incentives Report, released by Private Equity International (PEI) and Schulte Roth & Zabel (SRZ), provides analysis of the issues affecting general partner operations, such as waterfall structures, key man clauses, compensation and recruitment.
The survey of 130 fund managers found that a firm's reputation and its track record are the most important issues for LPs when selecting a fund manager. Because the identity of key persons is central to that reputation, provisions relating to key persons are also an important, albeit a secondary concern, for investors.
Market conditions have caused an overall shift towards more LP-friendly terms in recent years. For example, some 80 per cent of funds now use the "European style" whole-of-fund carry model over the "American-style" deal-by-deal model.
In terms of the size of manager commitments, more than one third of fund managers commit between one per cent and 2.5 per cent of their own money to their latest fund and nearly one quarter place more than five per cent, emphasizing the increased pressure GPs face in assuming a meaningful level of capital alongside investors.
Private equity remains an attractive industry for talented financial service professionals, but managers believe better equity opportunities are essential to recruit and retain top talent.
