In this four-minute video, MVision founder and chief executive Mounir Guen shares his observations on the evolving dynamic between investors and general partners, as the former double down on the largest and more established managers. The demand for co-investments is also a component that is changing this relationship, Guen adds.
As for 2019, the industry is expecting a recession and what’s critical is to ride through the adversity and to “keep investing”.
When I started in the industry people were beginning their programmes it was quite common to have 100, 120 GP relationships. Today you are looking between 40 and 60 on average. And that’s a marked difference. So that means that those investors are also writing much bigger tickets and concentrating their relationships. And then both groups also want to do co-invests or directs or some form of combination. Some like to get involved early, some like to get involved later and so there’s a big drive to get that involved and to build that into the portfolio because it’s impact on the J-curve is quite significant.
Also in recent years the investor community is starting to absorb the general partner community and the interesting concept here is there is a little bit of a grey now so partnership is key to all. They still both need one another, both work with one another but their relationship is changing a bit and the spectrum goes across a broader investor base.
The one caveat for co-investments, which is critical is an ability not to have a slow ‘no’. And so, if you do have that type of relationship with a general partner the quicker you can get to the answer ‘no’, the more it’s good for both parties.
But when we go to the newer markets they are so underpenetrated. The opportunity set is massive but the caveat here is control, which we are not seeing necessarily consistently across all these geographies in the newer markets. But more importantly what I said to you before is the dollar return. And as a result of that, it’s hard to take to a committee funds that are .3x or.5x net dollar return whilst your US fund is 1.8x net return or even 2x net in some lucky cases.
The market is expecting a recession to come. The market is expecting some of the economic figures that we see in some of the key countries in the world to kind of not show the type of dynamic that it has over the period. Some parts of the market have been working in quite buoyant environments, others have gone through the financial crisis and have been seasoned by it. But there is this strong view.
What’s interesting is that the private equity market believes it can work through any adversity. What’s critical is not to stop investing, to keep the market flowing and to work through the capital. If you buy expensive make sure you are comfortable with the asset, but position the portfolio, position the capital.
I don’t see anything diminishing in the industry. I see the industry still moving forward but you know in the environment we will have a bit of interesting dynamic to it in 2019 that we haven’t seen before, or we haven’t seen in the last five, eight or 10 years.