There’s no question that the GP community has made huge strides incorporating operational capabilities into their teams. Quite how they choose to incorporate those capabilities varies widely from manager to manager, based on myriad factors related to investment strategy.
Although some LPs will admit to having preferred operating models, the majority agree that when it comes down to it, GPs need to choose the model that’s the right fit for them.
However, talking the talk is not enough. LPs want to see concrete proof that a GP’s operational capabilities contribute to building a better business – and delivering a higher return.
The private equity industry has been under significant pressure in recent months to provide more transparency around fees. How they choose to incorporate operating capabilities into their investment model – and who pays – has not escaped scrutiny.
“Yes, we are very mindful of cost and fees, but at the end of the day it’s: do we believe that the net returns that our clients will receive justify the fee level?” Gripton says. “I would be unlikely to dismiss an investment just because of a fee structure if the fee structure supported the returns that we were looking for.”