Chart of the Week: Terms and Conditions that most concern investors

Investors rank the following fee and expense-related issues in order of significance to their private equity portfolios.  

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The PEI Perspectives Survey, now in its third year, covers a wide range of issues including; macro-economic concerns, and fees and terms.

Similarly to last year, LPs citied the current level of management fees as the most common concern with almost three-quarters of respondents placing it in their top three. European investors were particularly hot on this: around half stated that it was their single most important issue when negotiating with GPs. “The 2-and-20 fee level is expensive, and [our] trustees are certainly concerned with the average fee level for private equity funds,” says Nationwide chief investment officer Mark Hedges.

On the other hand, Hedges also said that Nationwide’s trustees had never actually blocked a fund investment solely on the basis of fees. And this serves to highlight a sentiment shared by many of the respondents to our survey: the fee structure is not necessarily a problem as long as the performance is there to back it up.

As HarbourVest’s George Anson puts it: “The question should not be about whether 2-and-20 is expensive, but rather about whether these managers can deliver above average returns in the long term. If they significantly outperform, the fees are not expensive.”

To read the full report, you can download it here.