LPs voice concern over 2011-2012 vintages

Limited partners last week warned GPs that fundraising in 2011 will be anything but easy unless firms can prove their ability to ‘generate outsized alpha’.

Private equity firms should expect a to encounter difficult fundraising conditions this year, as limited partners trim down the number of GP relationships, shun first-time funds and back only the top tier of managers.

That was the message conveyed by speakers at this year’s EVCA Investors’ Forum, held last week in Geneva.

Post-recession years have historically produced the best private equity vintages, but some LPs do not expect this to hold true for this cycle. Joachim Høegh-Krohn, chief executive officer of Norwegian fund of funds Argentum Fondsinvesteringer, said his organisation was “cautious on 2011 and 2012 funds”. His caution was echoed by co-panellists, who agreed that high prices currently being paid for assets would translate into lower private equity returns.

David Plummer, private equity manager at the $20 billion New Zealand Superannuation Fund, joked that GPs looking for his capital should “leave out the post-recession chart” from their presentations.

First-time funds will have a very difficult time raising money, the panel agreed, and would only be likely to raise capital if they “fill a particular niche with no other access points”, said Plummer.  An example of such a niche would be global agribusiness, he continued, where the pension had been unable to source an experienced team and may consider sponsoring a first-time offering “alongside like-minded investors”.

In answer to the question “What does it take to get your money?”, Steve Byrom, head of private equity at the $95 billion Australian Future Fund, said: “We are looking for managers who will be good stewards of our pension’s capital. It is black and white; you either have – and have had – that mindset or you do not,” he said. “We need to have the conviction that you can generate outsized alpha.”