LP Collaboration or LP Collusion?

Last Friday, I wrote about how LPs were gaining some leverage on their mega-fund GPs, after years of being the weaker sister. Today, Dow Jones reports that a group of large institutional investors – representing over $100 billion in PE assets under management — have formed a lobbying group to collectively press for more LP-friendly fund terms. These include GIC, AlpInvest, Canada Pension Plan and Ontario Teachers’ Pension Plan.

I’ve long supported such an organization in theory, believing that LPs too often give away the store to greedy GPs (particularly in terms of transaction fee splits). But I’m immensely curious as to why no U.S. systems – particularly CalPERS and CalSTRS – are involved. The DJ article cites a group member as saying that “U.S. public pension plans lacked the resources to contribute to such a network.” Sorry, but that simply does not hold water. CalPERS, for example, has the resources in terms of both personnel and money. It also holds more cachet among U.S. buyout firms than do either GIC or AlpInvest, or at least more PR value when political attacks arrive.

So let me throw out something else: Could there be a fear of collusion? I’m no expert in the matter – although I know Rich Gedman got screwed — but too much cooperation could lead to such accusations (particularly from capital-desperate GPs). Perhaps not something the foreign groups need to worry about as much?

LPs are obviously allowed to collectively advocate for their interests (see the ILPA), and the institutional investor community is extremely broad. But it’s also true that mega-funds rely on a small group of LPs to serve as their cornerstones, and this new organization involves a big chunk of them. Adding CalPERS, CalSTRS, Washington and something in Dubai could tilt the balance.

I plan to discuss the matter with some attorneys today, but obviously welcome your thoughts…