Reconciling the interests of LPs and GPs

Is it possible for an organisation – largely funded by general partners – to serve the interests of asset owners and fund managers? We speak to Helen Steers, the first limited partner to chair the BVCA, and its director general Tim Hames

“It’s difficult to claim you represent the industry if you only actually represent a section of the industry,” says Tim Hames, director general of the British Private Equity and Venture Capital Association. To broaden its voice, the BVCA has appointed a limited partner to chair the organisation for the first time.

Hames, who took the top job in 2013, uses the example of the negotiations surrounding the Alternative Investment Fund Manager Directive in 2010-2013. The BVCA and the European industry body Invest Europe – known as EVCA at the time – were “significantly weakened” by not having investors on board.

“Having large numbers of LP members would make it much easier for that voice to be heard.”

With this in mind, the BVCA appointed Helen Steers, a partner at Pantheon, as the first limited partner to hold the chair. Steers is aware of the magnitude – and symbolism – of the task she has taken on.

“I am the first LP to do it, so LP eyes will be on me,” she tells Private Equity International. “I’m absolutely determined to make a good job of talking about issues that really matter to them, such as transparency and disclosure.”

As a partner at a fund of funds manager, Steers is more of a hybrid LP-GP than a ‘pure’ asset-owning LP investor from a pension or endowment. She is undeniably part of the private equity industry.

But her appointment, Hames tells PEI, is a “process of evolution”.

“I would anticipate at some stage in the not hugely distant future what you might describe as a ‘pure’ LP to be chair,” he says, noting the organisation’s LP membership has grown from around 15 – mainly funds of funds and secondaries investors – in 2013 to 112 today, 25 of whom are funds of funds and secondaries investors and the remainder of whom are institutional investors.

“That’s quite a big change in a relatively short period of time,” Hames says. “It’s right that it’s reflected in the fact that we’ve now got an LP/GP as chair.”

In a statement in December announcing her new role – which came into effect on 1 April – Steers said her aim was to “focus on representing the voice and priorities of investors on the one hand; and on the other hand, in partnership with GPs, presenting a concise and compelling case for the contribution private equity can make to investment returns via its unique super-active management model”.

Both Steers and Hames point out that the distinctions between what it classes as ‘institutional investors’ – asset owners – and fund of funds managers and general partners are becoming increasingly blurred as co-investment and direct investment become more common. A Canadian pension fund making a direct investment in an operating company faces many of the same challenges as a GP doing the same thing. Or, as Hames puts it, “it seems increasingly illogical to say ‘you’re sheep, and you’re goats, and you never mix’”.


LP members are becoming increasingly involved in the BVCA’s governance, something Steers is keen to promote. Among its various committees is a limited partner committee, which aims to “establish an effective feedback loop between the LP and GP communities”, according to the BVCA website.

“Among other roles, the LP committee has been acting as a complementary voice to the GP members, reminding them why they need to take reform seriously on things like fees and transparency,” one BVCA LP member told PEI.

“It has been able to warn GPs that ESG and ODD [operational due diligence] are things that they should have been preparing for, as investors are starting to take these things seriously.”

While it is certainly useful to have LPs inside the BVCA tent as a “feedback loop”, their most significant value is in the weight they add to lobbying efforts. The association hopes their presence will mitigate some of the weaknesses Hames described in relation to the AIFMD lobbying process.

“If we can get the investors (LPs) talking about investment successes, not just GPs, I think it’s even more powerful, and not just because you’d expect GPs to be ambassadors for what they do,” Steers says. Investors talking about it “carries more conviction”.

And the industry has some hard lobbying ahead. Days before Steers took up the chair, UK Prime Minister Theresa May officially triggered Article 50, and began the formal process of the UK leaving the EU.

With the potential for the country’s financial – and other – rules to be rewritten, what’s at the top of the agenda for the private equity community?

For Hames, the most immediate issues to address are around people: resolving uncertainty around the status of EU nationals that are in the UK; the future flow of talent for private equity firms that are accustomed to hiring internationally; the pool of entrepreneurial talent in the UK, and whether the country will be as appealing for EU citizens interested in setting up businesses in the continent’s largest financial centre; and the effect on portfolio companies, especially in private equity-heavy sectors such as hospitality and restaurants which have a high percentage of EU nationals in their workforces.

“The government really has to decide in the next 12 to 18 months what it wants its domestic immigration policy to be, because we have to have one by the time we exit the EU. There has to be a new regime otherwise all this talk about taking back control is pretty meaningless,” he says.

“During the year that Helen is chair, that’s very much the part of Brexit I expect to see 75 percent-plus of the argument being about.”

The negotiation around AIFMD passport or any equivalence will come later, Hames says.
While on an issue like Brexit, LP and GP interests are largely aligned, there are other circumstances and issues on which the two parties will not march in step.

Historically a GPs’ organisation, the BVCA is still mostly geared to – and funded by – members of the fund manager community.

A one-year membership for a new ‘pure’ LP costs £250, which rises to £535 from year two onwards. Fund of funds managers – such as Pantheon – are required to pay anywhere from £3,285 a year up to £21,860 for those with more than £2 billion under management. Full membership for a UK general partner costs anywhere from £1,210 per annum for managers with up to £10 million in European funds under management to £49,195 for those with more than £1 billion.

“Relatively little of the lobbying aspect on a day-to-day basis is normally LP-focused,” Hames says. “GPs have got more areas of life in which they have interests that need representation than LPs do, not least because they have portfolio companies.”
One mid-market UK fund manager PEI spoke to described BVCA membership as “good value for money” – especially for those that engage with the organisation, attending networking events, conferences, forums and trainings.

As for the discrepancy in membership fees, the fund manager noted that the organisation doesn’t want fees to deter LPs from joining: “If you can get lots of LP members, that’s probably a positive thing for most of the GPs. Our industry is not just about general partners.”

Steers is reluctant to acknowledge there are challenges in representing both the LP and the GP communities, merely pointing out that there is a broad range of opinions even within the GP community, and that “it’s quite natural that not every member in the association will have exactly the same points of view”.

Hames concedes that “theoretically there are lots of potential conflicts”, and that “we’ll only find out how challenging those challenges are if and when we get into a more difficult part of the economic cycle”. ?

Since Hames became director general in May 2013, BVCA membership has grown from 470 to 660. The growth has come predominantly from LPs, but also from new, smaller funds in the growth capital and venture capital spaces.

Hames admits this is partly due to the economic cycle – “it’s always easier to run a member organisation when, on the whole, money’s flowing into an industry” – but also thanks to increased interest in the VC and growth segments.

“We had 17 new venture capital funds join the BVCA in the last financial year, which is the most we’ve seen since the dotcom boom and bust,” Hames says. “That tells you something about the revival of venture capital and the willingness of people to take the risk of trying to launch their own fund.”

Both Steers and Hames point to engagement, particularly with the BVCA’s training courses, as a sign of the health of the UK industry.

“The biggest single early signal to us about changing behaviour is training,” Hames says.

“At the moment that is encouragingly healthy, which must mean that new people are being hired or people are looking to slightly adjust their skillsets because of changing the way they’re doing business.”