Fewer GPs say they expect carry

Nearly a quarter of UK-based private equity fund managers say they expect no carried interest from their current funds, a drop in confidence compared to late 2009, according to Investec.

Roughly three quarters (76 percent) of UK-based GPs expect their funds to do well enough to kick-in carried interest (or a GP’s share of the profits), down from 83 percent of GPs who said the same 18 months ago, according to new research from Investec Fund Finance.

The drop is “perhaps a symptom of overconfidence in 2009”, said Simon Hamilton, head of Investec’s Fund Finance unit, in a statement. He added the overall sentiment amongst GPs however remains positive.

Investec, which in January interviewed more than 100 UK-based fund managers as a follow-up to earlier research, further discovered a quarter of GPs rely on carried interest to invest in future funds. The sentiment contrasts with the 43 percent of GPs who said they intend on hitting the fundraising market again with bigger fund targets in mind.   

Our research shows how reliant [GPs] are upon carried interest for their commitment

Simon Hamilton

Going forward it will be interesting to see how GPs manage investor expectations around the amount they will personally commit to their next fund, said Hamilton. “Our research shows how reliant they are upon carried interest for their commitment. This sentiment has been consistent with more funds approaching us to help them finance their personal commitment.”

The research also found more GPs are focusing on restructuring and refinancing portfolio companies, a matter lower on the list of GP priorities in 2009, according to Investec. By 2016, $424 billion in debt held by European portfolio companies will be due, according to research from Freshfields Bruckhaus Deringer.

Furthermore, fewer GPs said making new investments was a top concern at the moment, “even  though most funds have significant undrawn commitments, and are quickly approaching the end of their investment period”, said Investec.