With mid-market private equity firms seeking to raise more than EUR50bn in Europe over the next 24 months, relations between fund managers and investors have never been more important. However, according to Acanthus’s LP-GP Survey 2011, there is little agreement on terms and conditions and on the level and quality of communications to investors.
An astonishing 97% of LPs agreed or tended to agree that current fee structures cause a divergence of interests between the parties, while just 22% of GPs concurred. Further emphasising the gulf in expectations, just 15% of limited partners rated general partner communications as "good", compared with 81% of GPs. Not a single respondent from the GP side thought their communications were unsatisfactory. Conversely, only 15% of GPs rated LP feedback as "good" in terms of clarity and effectiveness, emphasising that the dialogue has room for improvement from both sides. Perversely, however, both LPs and GPs agreed strongly that the quality of communications was an important factor in investment decisions.
On a more positive note, the research found that only around one in ten LPs and GPs thought the overall relationship was weak, while a majority of LPs (58%) believed the IR process had improved over the past year.
The survey also found that while 76% of LPs agreed that GPs should invest more in their own funds in order to promote a greater alignment of interests, just 22% of GPs agreed. There is however is evidence that GP opinion is shifting in line with the LP view.
Some 70% of LPs think they bring more than just money to the relationship, but the majority of GPs disagree, while just 3% of LPs thought investor protection clauses were strong, while most GPs (78%) thought they were adequate.
Between a fifth and two fifths of LPs described GP communications concerning areas such as underperforming investments, team changes and strategy changes as poor, however no GPs agreed with this assessment on any front. Over 25% of GPs meanwhile, rated LP feedback as "poor" in terms of clarity and effectiveness, while only 6% of LPs agreed, Both parties then, appear to overrate the quality of their communications.
The vast majority of both groups though (LPs: 90%, GPs: 100%) agreed that communications were an important factor in investment decisions. Only 12% of LPs and 11% of GPs describe the overall relationship as weak, although there seems to be little evidence that the relationship is improving significantly.
