Nearly half of LPs feeling uneasy about restructurings

A large proportion of family offices and foundations view GP-led restructurings as a negative mechanism, according to a survey conducted by parent company PEI's Research and Analytics division in association with Montana Capital Partners.

About 41 percent of respondents think that restructurings favor general partners at the cost of limited partners and that LPs are left with two bad options: to either sell at a discount or stay with a GP that has not delivered, according to the survey. They also dislike the fact that terms are usually reset in favor of the GP following a restructuring.

One of the respondents, Denmark's Realdania, viewed restructurings as “a healthy sign that someone is willing to fix something but it always means that something has gone wrong,” according to the report.

Only 22 percent of family offices and foundations take the opposing view and think that restructurings are a positive mechanism for change, which can be used to actively engage and incentivize fund managers.

GP restructurings can take many forms. For example, a GP can opt to restructure a fund near the end of its life that still has remaining portfolio companies in it, prompting the GP to seek more time and more money from new secondaries investors to realize its investments.

Several managers have undergone restructurings this year, including Lee Equity, Irving Place and Edgestone.  More recently,  Newport Global Opportunities Fund, a distressed debt fund managed by Newport Global Advisors, was about to begin a fund restructuring process.

Anecdotally, many secondaries market participants believe that GP-led restructurings will only grow in number and in size in the next few years. For now, the survey found that a small fraction of family offices and foundations have been or will be involved in a restructuring.

Over the last 12 month, 23 percent of surveyed family offices and foundations had a fund investments involved in a GP restructuring process. Only 14 percent plan to participate in one as a new investor in the next 12 months.