Insight 2013: An LP's view

General partners will continue to offer lower management fees in what could be a more favourable fundraising environment next year, says Hall Capital’s Jessica Reed Saouaf.

Despite a number of macroeconomic uncertainties looming over the next year, private equity managers may encounter a stronger fundraising environment in 2013, according to Jessica Reed Saouaf, head of the private equity group at Hall Capital Partners, an advisor to families, endowments and foundations.

“I don’t think 2013 is going to look like 2007, but I think that it could be a more favourable fundraising environment than 2012,” she said. “2012 has been slower, so perhaps that bodes well for 2013.”

While the overall pace of fundraising in 2012 has been moderately slower than 2011, Saouaf said, the vast majority of firms face a very difficult environment where only a small group of funds can raise capital in a short amount of time.

“There were a handful of funds that we invested in – and some that we didn’t –  that raised quickly, hit their targets and were oversubscribed, but there were many more that have been on the fundraising trail for quite a number of months that look like they’ll possibly hit their targets but in some cases not quite get there.”

Reed Saouaf

Hall Capital invested more than $100 million during the course of 2012, the lowest amount the firm has committed “in quite some number of years”, Saouaf said. “We invested in nine funds in 2012 versus 14 in 2011, and in 2007 the number was probably closer to 20.”

Of the nine funds to which Hall committed capital, four were venture capital funds. The advisory firm maintains more than 100 client relationships with private equity portfolios in various stages of maturity.

In terms of fee structures for LPs, Saouaf said that various GPs continue to demonstrate flexibility by offering lower management fees, though the broader industry is unlikely to witness any material change in the near future. 

“You’re seeing, especially in some of the bigger funds, a little bit of a willingness to accept a somewhat lower management fee or, like in the case of Bain Capital, have a couple of different fee structures that better accommodate the needs of different types of LPs,” she said. “The basic fee structure is in place, but certainly over the course of 2012 we’ve seen some of the larger funds come back and say, ‘We used to charge 2 and 20, now maybe we’re talking about 1.5 and 20.’”