More than 600 delegates gathered in New York this week for the 17th annual PEI CFOs & COOs Forum, the premier event for private equity finance and operations professionals.
Over the course of two days and more than 35 sessions, delegates debated everything from valuations strategies to data management to diversity.
Here are some of the major themes that came to the fore.
1.Could this be the end of 2-and-20?
In the forum’s opening keynote interview, Thoma Bravo co-founder Carl Thoma predicted the industry’s 2-and-20 fee structure will not survive the next 10 years, and capital gains tax treatment of carried interest will be gone in four. “Our fees will definitely come down… in the next 10 years. We will go into a recession and we’re paying super-high prices,” Thoma said in a fireside chat with PEI senior editor Toby Mitchenall, foreseeing “a period like the hedge funds have seen of, like, 1.5 and 15 [percent]”. Thoma also predicted a worsening political environment for the industry, which could lead to the end of carry’s favourable tax treatment. “Sometimes our industry has gotten so big that we’ve become a little more self-centred” at the expense of being able to win the hearts and minds of policymakers, Thoma said. “We have to go back to telling those stories [about portfolio companies] in local communities.”
2.The next new product will be a concentrated secondaries fund
Growth in the number and value of GP-led secondaries processes – in particular those involving single assets – is presenting secondaries buyers with a problem: they don’t have a mandate to take on some of the biggest transactions. Some, for example, are prohibited from any one asset comprising more than 5 percent of their fund. Capital constraint is therefore hampering the growth of this part of the market. It won’t grow further unless – or until – new pools of capital are opened up with a mandate to take concentrated bets. “This could be another product of your secondary offering,” one advisor said.
3.GPs, you’re not as tech-savvy as you think
LPs disagree with their managers over how prepared the latter are for cyberattacks, according to the seventh annual EY Global Private Equity Survey, the results of which were launched at the Forum. Over 60 percent of survey respondents said investors are not confident managers have the necessary procedures in place to prevent and deal with cyberattacks. On the other hand, the majority of private equity managers, regardless of firm size, said that they consider themselves to be prepared.
4.CFOs are in the fundraising engine room
LPs don’t always meet the CFO, but the work of the finance function – the quality of the data produced and responsive speed to requests – is a key indicator of a GP’s abilities, according to a panel of investors. “The direct relationship with you is key. If the data is clean, the team is responsive, it really goes a long way toward the impression we have of you as a firm,” said a fund of funds manager.
5.Despite the will, getting retail capital into PE could be a tough ask
A recurring talking point was the potential to get US retail capital into private equity. While the SEC has a stated desire to clear the regulatory path to make this happen, not everyone is getting quite so excited just yet. How long might it take? “We’re talking decades,” Brien Smith, chief operating officer of Neuberger Berman Private Equity, told Isobel Markham in his keynote interview.