LP power on display as they push back on areas where they see misalignment

Happy Friday LP folks!

We’re getting closer to our inaugural private equity conference Nexus 2024 that runs March 6-8 at the JW Marriott Orlando, Grande Lakes. I’m excited to see a lot of you there to chat in person about the industry and how the year is shaping up. March will be a good time to get a sense of where things are around fundraising, M&A, exits, secondaries, The Drama.

Some of the keynoters include Chris Ailman, outgoing CIO at CalSTRS; Lamar Taylor, interim executive director and CIO of Florida’s State Board of Administration; Matthew Liposky, chief investment operating officer at MassPRIM; and Steven Meier, CIO and deputy comptroller for asset management for the NYC Retirement System.

Get more information about the event here.

LP power: We had an example recently of the kind of pressure LPs are exerting on their GPs in today’s slower fundraising environment, which has shifted negotiating leverage to the LP side of the table.

Apollo Global Management approached the limited partner advisory committee for its 2013 vintage eighth flagship fund about extending the fund’s life as it approached its 10 year anniversary. Fund VIII was relatively exited, having closed on $17.5 billion in 2014, but still had about $5.6 billion of remaining net asset value, as of the third quarter.

Fund life extensions are generally routine, and are becoming more common as GPs take longer to find exits for their assets in the slow exit environment.

And they aren’t usually simply rubber stamp situations because the GP wants to attach some sort of management fee to the extension period, and LPs would prefer the fund wind down at the least expense possible.

This is especially true when it involves mega-firms with numerous funds and fund families. With fees coming in from many directions, the LPAC of an individual fund will push back on continuing fees into an extension.

In this case, Apollo proposed to keep the same fee it had been charging during the harvest period over the two-year extension. Fund VIII charged 1.5 percent during the investment period, which dropped to 0.75 percent of investments after the investment period.

The LPAC pushed back, making it clear it didn’t want to pay fees during the extension. The two sides eventually compromised: LPs would pay the GP half of the current fee during the first extension year, and no fees during the second.

Not to say these types of negotiations don’t happen around things like extensions or amendment requests. But several sources expressed surprise at the LPAC’s resolve to pay no fees. Read the full story here on Buyouts.

LPs see openings in today’s market around things they may have not loved in the past, but had to tolerate in order to maintain relationships with desired GPs. They are now taking the opportunity to realign areas they feel may have come out of whack during the bull market fundraising years before interest rates started to rise.

“LPs are sitting back, they’re watching fundraising. They’re watching how a portfolio comes together. They have time on their side to watch things marinate. We’re even seeing it with re-ups,” Brian Price, partner with Aviditi Advisors, tells Buyouts for our upcoming February cover story.

What are you seeing out there? Have you had experiences with intense negotiations around amendment or extension requests? Hit me up at christopher.w@pei.group or find me on LinkedIn.