LP: Industry’s success has led to more regulation

Large pension funds are the primary catalyst of the private equity industry's institutionalization, according to one LP, who describes them as 'elephants tiptoeing' into the asset class.

Private equity grew on the back of great returns, and this growth has played a large part in the greater regulatory burden the industry now faces, said Khaled Sayid, Capital Generation Partners chief investment officer, at the Oxford Private Equity Forum on Tuesday.

Addressing delegates at the forum, Said said the arrival of institutional investors in the asset class chasing superior returns has led to more scrutiny of GPs, both from LPs and government agencies. 

He added that this causes the asset class to give away some of its “special sauce” and leads to a loss of alpha.

He argued that the herd mentality of large pension funds has “distorted” the industry as they act like “elephants tiptoeing” into the asset class, demanding greater transparency and regulation.

This increased transparency has led firms to become more risk averse, he continued. Sayid believes the trend is causing a split in the asset class as more firms become diversified players and less pure play private equity as a way of mitigating risk.

He now sees the asset class as one with “boutique” players, that are more suited to private capital investment as they can create greater returns but are more volatile, and “conglomerate-like” firms that suit institutional investment as they are more predictable but create lower returns.

“What is good for pension funds is bad for the entrepreneur,” he concluded.