Apax's Megrue: ILPA guidelines are 'big leap'

Partnership terms-and-conditions principles promoted by a limited partner advocacy group will likely change somewhat in the future, said John Megrue, chief executive officer of Apax Partners US.

Megrue made the comments before a crowd of delegates to the Wharton Private Equity & Venture Capital Conference in Philadelphia Friday.

Asked by an audience member what he thought of the private equity principles put forth last year by the Institutional Limited Partners Association, Megrue replied “we're supporters” of the ILPA principles, but the suggested terms and conditions represented “a big leap. Some of those will be modified around the peripheries”. He didn't go into details about his comments.

The ILPA Private Equity Principles set forth a series of terms and conditions that members of ILPA say they would prefer to see in private equity partnerships going forward, and which they argue better align interests between LPs and GPs.

Among the more controversial recommendations is the adoption of a “European-style” waterfall distribution formula, which stipulates that GPs only take carry after all committed capital plus a preferred return has been paid to LPs.

Megrue said much of what is found in the ILPA principles is easy to support, such as terms that call for greater alignment of interest and transparency. He also noted that as the market moves forward there will be greater distinctions made between top performing managers and others.

The comments about the ILPA principles came at the end of a keynote speech detailing lessons Megrue has learned from his long career pursuing buyouts. He originally joined London-based Apax in 1988, then left to found US mid-market buyout firm Saunders, Karp & Megrue. He rejoined Apax when the larger firm acquired Saunders Karp in 2005.

The private equity market will “absolutely” return to strong growth, in part because its more powerful forms of governance and management incentives will drive good returns, Megrue concluded.