Limited partners are tightening their grip in the ongoing power struggle with private equity managers.
Half of the 144 general partners surveyed by global accounting firm Grant Thornton said LP demands continue to increase. Specifically, investors want the right to meet with other LPs without the GP present. Increasingly demanding LPs have reassessed even their most longstanding manager relationships, the study says, in pursuit of stronger performance.
The increasingly difficult fundraising environment will continue in 2012, and is driven by the LP sentiment for increased transparency, according to Steve Brady, head of transaction advisory services at Grant Thornton.
In the Middle East and North Africa region, general partners consider “limited partner sentiment” the biggest challenge facing the industry, while unsurprisingly, respondents in Western Europe cited the health of the economy as the greatest challenge. Still, Western European GPs are preparing for the need to identify a greater proportion of new investors than they have in the past, the study said.
In the Asia-Pacific region, GPs are increasingly competing for international capital, as domestic LPs that historically have been “significant supporters of the local industry” scale back their commitments to the asset class, the study said.
“In the family office and high net worth world of LPs, what we’re seeing is an increasing desire to kind of bypass the whole private equity fund model and do direct investing as either a single family office or a multi-family office,” said Stephen McGee, national practice leader of corporate finance at Grant Thornton. “I think that’s somewhat nascent right now…but it’s beginning to get some legs underneath it and I suspect that will only increase in the next 12 months.”
In terms of investment activity, however, nearly two-thirds of GPs in the survey expect deal flow to increase in 2012. GPs identified the consumer sector as being the most active, followed by business services and industrial and manufacturing.