European GPs already dealing with default

Delegates in London at the Private Equity COO & CFO Forum have revealed that relations with their limited partners have taken a darker turn.

Over 250 delegates attending the inaugural European Private Equity COO & CFO Forum in London, hosted by Private Equity International the sister publication to PrivateEquityOnline.com, have today been revealing in more detail their current thoughts in connection with their limited partners [LPs].

The vast majority of delegates were senior professionals from within some of Europe's leading private equity and venture firms: the very people who have been tasked with developing the necessary reporting and administration infrastructure and methodologies to ensure, amongst other things, successful LP relations.

As part of the opening keynote speech, Jonny Maxwell, Chief Executive of Standard Life Investments [Private Equity] invited the audience to use an interactive voting system to offer some first-hand insight as to how they see key aspects of LP relations evolving.

The audience was first asked whether they had already experience of defaulting LPs in their own funds. When 37 per cent indicated that they had, even the irrepressible Mr Maxwell was surprised. The expectation was that the percentage was going to be in single digits. When he then asked the audience to confirm whether they had been involved in transfers of fund interests between LPs in their funds, the revelation that over half the audience – 55 per cent – had, saw both he and the audience further taken aback.

'I wasn't expecting to find more than a third of the GPs already had defaulting LPs,' commented one COO of a major European buyout firm who was in the audience. 'That suggests that there are many more investors out there wanting – or needing – to reduce their commitments in a hurry. That second figure builds on this same point: a lot more people than is thought are having to manage migratory LPs'

Maxwell also probed the ongoing GP/LP dynamic with two further questions, both of which offered telling insights as to how general partners are viewing the current state of this relationship between investor and fund manager. Firstly the audience were asked whether they could envisage situations where they [the GP] would refuse to grant consent to an LP in one of their funds who wanted to make a sale or transfer. The fact that 80 per cent said they could see themselves refusing consent would suggest that the talk of 'collaborative dialogue' between LPs and their GPs when an LP is looking to withdraw from a fund is optimistic at best.

Finally, Maxwell asked the audience to indicate whether they were expecting to increase or decrease the amount of information to their investors as a result of recent moves by some to publish fund data using the US Freedom of Information Act. The fact that one third of the audience [33 per cent] envisaged delivering less information to their LPs would, in the words of the above COO delegate: 'suggest that some private equity firms want nothing to do with this much touted concept of 'increased transparency' – whatever that exactly means.'