Changing dynamics

The shifts being seen in Western LP-GP relationships are also surfacing in Asia, writes Siddharth Poddar.

Chat with industry practitioners in Asia and you’ll learn that most general partners are spending more time on almost every aspect of their trade, particularly in dealing with more demanding – and in some cases cash-starved – limited partners.

Raising capital is an uphill task in this climate, particularly considering the liquidity issues with which many LPs are confronted. Fundraising road shows are thus more time consuming as GPs seek new investors, as well as to secure re-ups from existing LPs. Fundraising woes have been well documented in the last few months, with many firms either lowering targets or opting to close short of their goals. Unitas Capital, for example, closed its CCMP Capital Asia Opportunity Fund III on $1.2 billion in December – well short of the $2.5 billion target it had set when the fund launched in April 2007.

Siddharth Poddar

Fund managers are also being compelled to devise new measures to draw investors. Kohlberg Kravis Roberts, for instance, will charge investors a 1 percent management fee on committed capital and a 10 percent carry fee for its maiden infrastructure fund, rather than the classic 2-and-20 structure. KKR's decision to reduce fees for this fund is perhaps less surprising considering it is its first foray into infrastructure, but in recent times, other firms such as Candover and TPG have reduced management fees on funds employing established strategies.

The buzz in Asia is that some firms are considering similar moves to better appeal to and assist LPs. A regional fund of funds manager said that a few investors in the region are also trying to talk fund managers out of the traditional 2-and-20 structure.

Another lifeline GPs have been throwing to investors is the chance to reduce commitments to funds that have already closed. Permira started the trend late last year when it said LPs could reduce commitments by up to 40 percent for its €11.1 billion Fund IV. TPG soon followed suit, and most recently it was revealed it would let LPs in its $4.25 billion TPG Asia V fund, the largest Asian fund raised to date, cut commitments by up to 10 percent. It is not far-fetched to think that other Asian fund managers would consider similar measures.

LPs are also now seeking greater information on and involvement in the daily operations of GPs.  “LPs are getting more micro in their supervision of GPs,” one fund manager said.

Given that these LP-related changes, which require additional time and energy on the GP's part, are expected to become more prevalent in Asia, it's easy to understand why one Asian fund manager warns that “going forward, one would need to expend a lot more energy to do the same things”.