The debate may have died down, but your investors have not lost interest in subscription credit facilities. ATP Private Equity Partners, partner to the likes of Apollo Global Management and Silver Lake as well as a host of smaller and mid-market PE brands in Europe and North America, is now asking for more detail from its GPs.
“We need to be able to compare all GPs on equal terms, so we have to actually adjust for the use of credit lines in the performance data,” managing partner Torben Vangstrup told reporter Alex Lynn. “Every due diligence we do going forward, we’ll ask the GP to make that calculation for us.”
A June report from Carnegie Mellon’s Tepper School of Business found the lines distorted a fund’s IRR by 6.1 percentage points on average. Funds sampled showed sub line borrowing ballooned to an aggregate total of $5.3 billion in the first three quarters of 2018, compared with $86 million in 2014.
ATP’s decision is primarily driven by a desire to compare apples-to-apples, but Vangstrup also has one eye on changing market conditions. “It is crucial for us to understand the accurate size and risk associated with our outstanding commitments, not least in a situation where this world isn’t going to be as rosy as it has been lately,” he says.
We’ve previously heard how “stripping out” the effects of a sub line may not give an accurate picture of how the GP would have performed without it. It seems LPs are comfortable with this.
Email compiled by Toby Mitchenall.