NEW YORK, June 11, 2007 (PRIME NEWSWIRE) -- Limited partners (LP) in private equity funds are gaining ground on terms related to management fees, profit distributions and governance, according to the latest edition of the 2007 Private Equity Partnership Terms & Conditions Report. Despite a dramatically oversubscribed fund-raising environment, LPs are not willing to accept unfriendly investment terms as the price of doing business in the current climate, except perhaps from the very best firms.
The report found that some private equity firms are drafting more LP-friendly terms in order to raise money in a reasonable amount of time and not prolong the fund-raising process with pointless LP battles.
"The demand to enter the private equity market would imply that general partners (GP) could employ a take it or leave it approach for investors. But contrary to popular opinion, LPs are not simply rolling over on terms in order to win access to these funds," said Jennifer Rossa, managing editor of The Private Equity Analyst, which produces the report. "Other issues are coming into play on the GPs' side, such as wanting to recruit and retain top quality LPs."
Among the most important issues arising during negotiation of partnership agreements are management fees -- the amount that LPs pay to GPs to cover the basic costs of running the funds, generally assessed as a percentage of the capital raised. As funds have gotten bigger, LPs have raised concern about the growing size of those fees. The report found that while the vast majority of private equity funds are still charging a standard 2%, about one-third of buyout funds are charging less than 2%, compared to just 24.4% of buyout funds that reported doing so in the last survey in 2005. On the flip side, only 9.2% of buyout funds said they charge more than 2%, down considerably from the 20.2% two years ago.
The Terms & Conditions report surveyed more than 140 U.S., European and Asia private equity firms that had raised capital in 2004, 2005 and 2006.
Other issues arising in partnership agreements, according to the report:
* Transaction fees -- the fees private equity firms charge to the companies they buy -- are being distributed more to LPs. Two years ago, the report found the majority of firms split the fees 50-50. Now, nearly 64% of firms report giving 80% or more of this fee income to LPs. * Corporate governance provisions allowing LPs to take action to shut down a collapsed fund for cause are increasingly being spelled out in specific terms, the report found. And the key-person clause, the term that lists the people whose departures could cause a fund to be suspended, has become ubiquitous, the report found.
To find out more information about the 2007 Private Equity Partnership Terms & Conditions report, please call (866) 291-1800 or go to:
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