1) You released the latest revised version of your Private Equity Principles in January 2011, which provide LPs a template for best practices in terms and conditions. What’s been the impact on terms and conditions negotiated by GPs and LPs?
As you know I’m not privy to the conversations between LPs and GPs. However, anecdotally, the feedback I’ve received has been very positive, where both LPs and GPs have indicated that the best practices represent a good guideline for conversation when negotiating terms and conditions. A lot of the momentum occurred within the first six to 12 months, where there was a lot of movement on issues such as sharing of transaction fees, governance, and behavior of the LPAC.
2) Earlier this year you announced a partnership with Cambridge Associates to develop a performance benchmark based on funds backed by ILPA members. How is it going?
We are trying to increase the number of funds that are covered and are managed by ILPA member GPs. Our analysis showed there was a gap in our fund list vs. their coverage. So we are currently collecting the full universe of ILPA-backed funds. When that’s accomplished, Cambridge will seek information from GPs. The objective is too definitely say to members that the benchmark calculations that are contained in the ILPA benchmark have been vetted by us— that we’ve seen the data, and that the numbers can be relied upon, and that the benchmark maps to funds in our membership.
3) What’s the size of the gap? Cambridge covers funds we don’t have, and our members have funds that they don’t. There was originally about 20% overlap. We’ve since increased that overlap to 40% and once we finish we’ll be able to demonstrate that it’s far greater. When we hit 75 percent, that will be a very reliable number, and we’ll make it a continuous exercise to improve upon that number. I’ve just hired someone into the position of managing director-industry affairs—Michael Elio of LP Capital Advisors. He starts Augusts 1. He will really be driving that process. We’re hoping to release the benchmark by the end of the year.
4) Will it be an Improvement over current benchmarks? It may or may not be. The fact is, this will be a publicly available benchmark where we are able to look at the methodology and look at the data. That allows me to stand up in front of our membership and tell them how it works. One of the key issues for LPs is to know what data is contained within a benchmark number. That is one thing that’s been lacking—transparency in the level of detail, and in the consistency of data. We can go in personally and look at that data, so we can say to members that we have vetted the data, it is representative, it is consistent, it does map to our methodology, so we’re satisfied.
5) What is a common complaint you hear from LPs that they’d like ILPA to address?
One issue right now is that there are a lot of jurisdictions—in North America, Europe, Asia– with various and sundry types of regulation. In Europe you have the AIFM directive; here in the United State you have Dodd-Frank. There is not enough educational material out there on private equity. People in positions to make decisions about the industry may not be as informed about the asset class as they should be. So we’ve been asking ourselves: Is there a way we can aggregate data, aggregate research, provide seminars, information sessions, to regulators?We were just in Beijing, where we did a full-day Private Equity 101 for regulators and insurance companies called the ILPA Asia Symposium. It was very well received.
Edited for clarity