A Modest Proposal

When private equity firms raise a fund, they typically pack their LP advisory board with the fund’s largest and most well-known investors. It’s completely understandable, but it also can leave many of a fund’s smaller LPs without a voice. After all, CalPERS or Yale may have very different concerns than a family office or a municipal transit workers’ pension fund. Not saying one group’s concerns are superior to the other’s, just different.

So, a proposal: Private equity firms (buyout, venture, etc.) should include a couple of “at large” seats on their LP advisory boards. Any LP could run for these seats, with other LPs to vote at each year’s annual meeting (or by proxy).

This may be unworkable in a fund’s first year of operation, but certainly could be done in year two. Not only would it give smaller LPs a voice, but it also would help private equity firms understand what’s going on with the investors who often constitute the majority of their investors (if not the majority of their dollars). In other words, a win-win. Thoughts?