LPs still hungry for lower fees, more transparency

Research from Coller Capital shows that European investors in particular think fees are too high, and LPs in general believe GPs still have more work to do to improve transparency.

Private equity investors want to pay lower fees, but are not necessarily under pressure from senior levels within their organizations to fight for fee reductions , according to Coller Capital’s latest Global Private Equity Barometer.

The survey, which polled 113 private equity investors, found that just under half of both North American and Asian LP respondents find that current fee levels are too high even when a manager is transparent and performance is strong. European LPs were more critical of current fee rates, with 70 percent of respondents saying that fees are too high, irrespective of performance and transparency.

Despite LPs’ general dissatisfaction with current fee arrangements, however, the majority of survey respondents said they are not facing major internal pressure on fees from higher ups at their organizations. The responses were relatively divided, with 45 percent of LPs saying they do face significant pressure on fees charged by private equity managers.

Fees have long been a point of negotiation between investors and fund managers, but a survey of 60 European funds by law firm King & Wood Mallesons this year found no real change in the headline rates (although a slight downward trend on the previous year was noted). Instead, peripheral battles around protection against overpayment of carried interest are being won by investors whilst GPs are successfully resisting pressure on no-fault clauses on suspension and termination of the investment period.

The Coller survey also addressed the hot-button issue of transparency, finding that 86 percent of investors believe the industry is heading towards the right balance with transparency, but that GPs still have more work to do. Only 4 percent said they thought transparency was at the right level while 10 percent said transparency is poor.

The increase in one-off and follow up data requests that investors send to GPs has been a main contributor to the transparency disconnect between LPs and private equity managers of late, as GPs struggle to find the time to field them all. LPs are particularly interested in gaining more drilled down information on portfolio company metrics.