Although many won't admit it, a large handful of limited partners possess autographed copies of the PPM for Elevation Partners LP, the debut private equity fund managed by, among other partners, tech investor Roger McNamee and Bono, the lead singer of U2 (many LPs asked for Bono's autograph during fundraising, although not all of these music fans committed capital).
Bono's biography in the PPM includes this interesting observation: ?Unlike most bands, U2 owns and controls the exploitation of most of its own catalog.? This distinction might help explain how U2, unlike most bands, has featured the same four-person lineup since 1977.
Virtually no private equity firm can make the same boast. Indeed, private equity firms break apart at about the same rate as rock bands, as disgruntled rainmakers pursue visions of glory in their own groups, or in someone else's group.
As you'll read in the March issue of Private Equity Manager, dedicated to the topic of human capital, the ability to own and control the exploitation of the firm's capital is key to keeping good people in the band. The more ownership and control, the better. Of course, founders often take a dim view on giving junior or new partners a bigger piece of the pie. These founders risk epic personnel turnover in a competitive market for private equity investment talent.
As firms take steps to upgrade their abilities to add value to portfolio companies, they are bringing on board a new type of professional ?the operating partner (see p. 20). Nearly every private equity firm now agrees on the need for operating expertise, but firms often have wildly different models for compensating these partners.
It's a no-brainer that operating partners should get some type of equity in the deals they work on. But many operating partners, most of them former CEOs and senior executives, are eager to play a greater role than simply swooping down to, say, straighten out an accounts receivable problem. Many also want a meaningful role at the firm level ?sourcing deals, sitting on the investment board, having stakes in other companies in the portfolio. Not every GP is willing to grant this level of participation to operators.
The March issue of PEM also discusses the complexities of an exiting partner (p. 24) and catches up with a veteran private equity academic, who is helping to train the next generation of private equity leadership (p. 35).
Enjoy the issue,
By David SnowDavid.email@example.com