Management fees of large buyout funds has dropped to the lowest level in five years in the clearest indication yet of a shift in the balance of power between private equity fund managers and their investors.
A report from Preqin – entitled ‘Terms and Conditions after the Crash’ – reveals that buyout funds in general are cutting their proposed management fees by a mean of 20 basis points to 1.8% from the traditional 2%.
Large buyout funds that have closed this year, i.e. US$1bn or more, have set management fees 25 basis points lower than those with a 2008 vintage. Preqin says there are currently 1,622 funds on the road as of July. According to Thomson Reuters, plus US$1bn funds currently raising include:
• Blackstone Capital Partners VI
• Hellman & Friedman Capital Partners VII
• Morgan Stanley Real Estate Fund VII
• Clayton, Dubilier & Rice Fund VIII
• Lexington Capital Partners VII
Funds which closed this year include:
• CVC European Equity Partners V (€11bn)
• Apollo Investment Fund VII (US$14.8bn)
• Riverstone/Carlyle Global Energy and Power Fund IV (US$6bn)
• Charterhouse Capital Partners IX (€4bn)
• Carlyle Asia Partners III (US$1.04bn)
Preqin also reveals that of the investors they polled, 43% had seen a power shift towards the LP when negotiating terms and conditions, only 2% had seen a swing towards GP. Ninety percent of placement agents polled are advising clients to change terms in favour of the LP.
Funds are also increasingly including no-fault divorce clauses into their terms and conditions – 95% of vintage 2009 funds and those currently fundraising include such a clause, up from 84% of vintage 2008 funds.