Crisis-era funds tested the limits of the 10-year fund structure; GPs and management teams needed more time to bring to bear operational and capital structure changes. Though the funds ultimately performed well, the consequences are now being seen in the emergence of more GP-led secondaries transactions, where investors in funds that have reached the end of their life are offered some sort of liquidity option.
For Katja Salovaara, senior portfolio manager at Finnish pension fund Ilmarinen, these processes – which are fraught with conflicts that need to be managed – are not evidence that the 10-year fund model, with its fixed investment and harvest periods, needs rethinking.
“I think it is a great model that puts a lot of focus on getting the job done within the timeframe,” she told PEI as part of a wide-ranging interview which be published in full soon. “It instils discipline and I think that is one of the drivers of performance: there is a real intensity to value creation.”
The emergence of longer-dated vehicles will not threaten the more widespread 10-year fund model, says Salovaara. “For humans – because we are not machines – it is the time period for which we are engaged. A four or five-year plan is more realistic than a 10-year plan.”
Ilmarinen has approximately €2.5 billion invested in private equity and has committed capital to managers such as KKR, EQT, Silver Lake and Nordic Capital.