High asset prices are threatening to depress fund manager revenues, according to research from Cobalt GP.
The median entry price hit a record 10.54x enterprise value to EBITDA in 2017, higher than the 8.85x recorded in 2007, according to a note from the tech platform. Returns have declined every year since 2009 and fell to a 17-year low of 1.00x in 2017.
Performance fees account for between one-fifth and half of general partner revenues when using six unnamed listed firms as a sample, the research found. Compressed exit multiples could see this income decline.
The research throws a spotlight on the fund of firms or GP interest strategy. Permanent capital vehicles, such as those managed by Dyal Capital Partners or Rosemont Investment Partners, aim to tap steady cashflows rather than benefit from a bumper exit.
Asset gathering may insure managers against performance fee erosion to some extent. A heady fundraising environment has seen firms enjoy rampant AUM growth through new funds, strategies and platforms, which leads to management fee growth.