Chart of the Week: Benefits of a large GP commitment

The larger the GP commitment to its own fund, the easier the fundraising process

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Private Equity International, in association with Schulte Roth & Zabel, carried out a survey of senior private equity managers in October and November 2013.

The survey was designed to provide a deeper understanding into how managers structure funds to ensure alignment of interests with their limited partners, and to maintain performance incentives.

Over 130 people took part in the survey, representing institutions of different sizes and managing funds with various strategies in all parts of the world.

Although private equity fund managers agree that they need to have “skin in the game” to ensure alignment of interests with their investors and to keep staff incentivized, there is no industry-wide agreement on the size of contribution that firms should make to their own funds.

Managers think that a larger commitment demonstrates to LPs a clearer alignment of interests and so can facilitate the fundraising process. In addition, managers believe that LPs want GPs’ percentage contribution to increase, with one manager emphasizing how “LPs want to see real GP commitment, direct with their own money.”