Your free-to-read rundown of the top takeaways from day one of PEI’s CFOs & COOs Forum 2020 in New York.
Click on the links to read the relevant (also free to read) articles.
The decline and fall of fees and carry: The CFOs & COOs Forum kicked off on Wednesday morning with a keynote interview with Carl Thoma, of Thoma Bravo. Private Equity International’s Toby Mitchenall asked Thoma about the future of the industry. Here are some key prognostications and insights (check out the article, free to read, for context):
-Thoma thinks the “two-and-twenty” fee structure won’t be defensible within 10 years.
-The capital gains tax treatment on carried interest will be gone in four years.
-The amount of money raised by funds has unsustainably outstripped the number of companies to buy.
-The investor community should be thinking harder about what it means to have so much illiquid PE in their portfolios.
-The political attitude toward PE will only worsen.
-The industry needs to head this off by communicating its impact on local communities.
Heard in the room: Adam Smallman has views from around the room at a gathering of c-suite executives discussing the big issues. You can tell it was conducted under Chatham House rules: some of the sentiments expressed on ESG and the potential for retail investors weren’t particularly sanguine.
-Growth in the number and value of GP-led secondaries processes – in particular those involving single assets – is presenting secondaries buyers with a problem: they don’t have a mandate to take on some of the biggest transactions.
-Capital constraints are seen as the biggest potential impediment to further market growth.
-But: what if there were new pools of capital that could take on concentrated bets?
-Managers think they’ve got cybersecurity down pat. LPs don’t agree (charts from the survey included in the article).
-The survey also found that more managers are making concerted efforts to diversify their workforces. “When we have a diverse set of backgrounds, we come out with better results,” said one panelist.
Daily IRR reporting: Connor Hussey reports that some CFOs think it’s time to make the switch to daily IRR reporting
-GPs have been reluctant to pick up GIPS compliance if they’re LPs don’t require it of them.
-But, said one CFO: “Switching from pay-day calculations to daily IRRs is something that we can begin to change – that LPs will appreciate.”