Two sides of the same story

The need for clear communication between private equity firms and their limited partners has undoubtedly increased over the past 24 months. GPs have strived to guide portfolio companies through testing market conditions, while LPs have sought to make heads or tails of their own portfolios. Both sides of the partnership have needed to offer upfront communication.

However, despite thinking they are communicating well with LPs, a recent study suggests GP reporting standards still leave much room for improvement. 

A vast majority of LPs polled (77 percent) believe they have noticed no improvement in the timeliness or detail in their GPs reporting during the financial crisis, according to an annual market survey conducted by European placement agent Acanthus. In stark contrast, 65 percent of GPs believe they have improved their reporting during the same period.

Underling this mismatch is the fact that three-quarters of GPs rated their communication on the subject of underperforming investments as being good, with the rest considering themselves to be average. Conversely most LPs (80 percent) rated their GPs as being either poor or average on this front.

Results from Acanthus’ 2010 LP-GP survey show that while the financial crisis has allowed LPs to be more aggressive in negotiating fund terms, the LP-GP relationship is still in a state of flux. “Even though people say the pendulum has swung,” says Armando D’Amico, managing partner of Acanthus, “Things are taking their time.”

Acanthus surveyed senior personnel at 62 LPs and 74 GPs in Europe and the US.

Fee structures remain a grey area, with dramatically different views on either sides of the partnership. Most LPs (89 percent) felt that fund fee structures create “divergence” between LPs and GPs. One 39 percent of GPs shared this opinion.

Perhaps understandably an overwhelmingly large majority of LPs (95 percent) felt that GPs should be investing more money in their own funds. GPs were divided on the issue, with 53 percent agreeing.