A new report by Intertrust has found that only 26 per cent of investors expect to see long-life private equity fund structures – which have a term of between 15-20 years and charge lower management fees – rising in popularity over the next five years.
The report, which details the findings of a recent survey of 142 private equity professionals, identified that almost 60 per cent believe greater flexibility to invest in portfolio companies for longer periods to improve returns is a driving factor in the growth of long-life funds.
A further 34 per cent stated that they have a greater ability to invest in sectors delivering longer term investment horizons. In contrast, 38 per cent of investors expect to see short-dated funds with term limits of between three and five years grow in popularity.
Paul Lawrence (pictured), Global Head of Funds at Intertrust, says: “A maturing industry is resulting in more experimentation with fund structures. Short-term funds are popular among new managers attracting LPs who are cautious of locking up their capital for a decade or more in an untested strategy.
“Conversely, long-life funds are under less pressure to deploy capital and can hold portfolio companies for a lot longer, but investors want to see a successful track record before committing. The bottom line is that fund structures need to reflect the alignment of GP and LP interests.”
