Despite the recent attention from limited partners and regulators on the future leadership at private equity firms, more than half of investment firms do not have a succession plan in place, according to exclusive data from J. Thelander Consulting and PitchBook.
The Thelander-PitchBook 2015 Investment Firm Survey polled 446 US respondents, including 160 private equity firms, on their compensation packages, carried interest payout strategies and succession plans.
For the 47 percent of respondents who stated that their firms do have a succession plan in place, 62 percent said the top person at the firm was involved in creating that plan.
During a speech in October, US Securities and Exchange Commission (SEC) Chair Mary Jo White said the SEC is currently drafting recommendations regarding “transition planning for advisers.” GPs are currently subject to few requirements when implementing a succession plan, which an increasing number of firms are considering as the industry’s original founders near retirement age.
Section 205 of the Advisers Act includes a provision requiring managing partners with significant control over the firm – either through ownership shares or representation on a management committee for instance – to gain LP consent before transferring a significant amount of control over to a colleague, third-party firm or investor. Beyond that, succession planning is largely an unregulated area.
For many LPs, succession is an area that is becoming increasingly important as they make their investment decisions. Concerned about the next generation of key persons, LPs are now asking more questions around succession during due diligence, sources tell pfm.
For more coverage on the Thelander-PitchBook survey, including an in-depth look at private fund compensation trends, see the February issue of pfm.