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Competing conditions

LPs are getting choosier over terms and conditions

You might think of terms and conditions as a lagging indicator of the state of the private equity market. When deals and exit markets dry up, the capital call and distribution pace slows. Then fundraising slows. Then GPs get antsy and LPs get stingy. Then terms and conditions change. The reverse is also true – when the market is booming, the power of the GP is reflected in the partnership terms.

Our current times are best characterized by the former lagging indicator. GPs want capital but LPs are choosier. This state of affairs coincides with the October issue of PEI Manager, which has a special focus on terms and conditions.

In speaking with our network of partnership experts, we learned a few interesting things that you'll read in this issue. Jennifer Harris writes beginning on p. 20, GPs have been largely rebuffed in their attempts to have the right to alter the economic terms of the partnership agreement in the event that taxes on carried interest are raised. In a more robust market – like 2006 – would LPs have been as steadfast?

On p. 22, Harris presents a roundup of terms and the movement that has occurred around them as the post-golden age LBO market has revealed itself.

On a separate topic, I'm pleased to announce the launch of a new service that I hope you'll enjoy. Until now the community of private equity firm managers has been served by this publication only. We will now add to this with the PEI Manager Memo, a regular email newsletter that will keep the PEI Manager community up to date on actionable intelligence around the world that affects the business of being a private equity firm. We welcome your feedback on the Memo and hope to make it a useful tool for keeping you connected to the best ideas and practices for your firm.