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Study: GPs concede to LP demands post-crisis

Under increasing pressure to attract capital, GPs have acceded to investor demands for more transparency and lower fees, according to a global survey from fund administrator SEI.

The third part of SEI's global survey of 411 fund managers, investors and consultants suggests managers have started making concessions to LPs in an attempt to maintain or attract new commitments to their funds.

The report found that since the market decline in 2008, 59 percent of GPs have increased the amount of information given to investors in order to attract new capital. Similarly, almost 70 percent of LPs said that the levels of transparency they get have increased during that time, showing investors have noticed a tangible response from managers to their concerns. 

Fee levels also showed improvements for LPs, as roughly a third of investors have noticed a reduction, the survey found. Incentive fees showed the greatest difference, with 38 percent of investors seeing lower incentive fees, whereas 22 percent of investors have noticed lower management fees. 

The issue of fees has been a widespread topic of concern recently, as investors exhibit mounting disdain for the fees faced when committing capital to private equity. At the PEI Emerging Markets Forum last week, long-standing Georges Sudarskis, who founded the Abu Dhabi Investment Authority in 1998, criticised management fees as “unacceptable”. Sudarskis suggested a more cost related fee be imposed on investors, according to a PEI report at the time. 

Today, the Financial Times also reported on Sudarskis’ interview at the PEI Forum last Tuesday and spoke to the head of fund of funds Hermes GPE, Alan MacKay, about the issue. MacKay said, “The old fee model is outdated and too expensive.”

The survey also found that a degree of disparity remained between LPs and GPs regarding barriers to further or increased commitments to the asset class. Half of GPs surveyed felt that fear or reluctance on LPs' part was the biggest barrier to raising capital, while only 7 percent of LPs thought that was the case. More than 40 percent of LPs instead cited the illiquidity of the asset class and concerns over risk levels as being the chief reasons for avoiding further commitments.