Indirect LP Interaction

Yesterday I posted an argument for why rank-and-file pensioners are not entitled to ask questions at a private equity firm’s annual LP meeting. It was prompted by a recent incident in San Diego, where a handful of SEIU members tried to gain entry to KKR’s annual LP meeting, but were turned away by building security and the police. Many of these people do invest in KKR via corporate pension funds, I wrote, but they are indirect LPs. As such, they should have their concerns relayed to firm management by their own fiduciaries.

Pragmatic argument, since there is no way KKR or any firm could properly conduct an annual LP meeting if its hundreds of thousands of indirect LPs were able to attend. Not only would the logistics be unwieldy, but confidentiality could also be sacrificed when it comes to things like portfolio company valuations and outlooks.

That said, it’s also an incredibly elitist argument. As the UK’s Walker Report correctly asserted, private equity firm impact extends far beyond investment returns. For example, what happens if CalPERS invests in a private equity infrastructure fund, which then privatizes a California facility that employs CalPERS pensioners? Do they still retain their union benefits? Do they even retain their jobs? Just one of many questions that indirect LPs deserve to ask, since it’s their money floating the boat.

So a preliminary proposal: Private equity firms could begin holding indirect LP meetings.

This would not be a clone of current LP meetings, which typically mix fine food and locale with confidential portfolio company/fundraising updates. Instead, it would be an open forum in which indirect LPs could ask questions of private equity firm management. You’d probably need some sort of impartial moderator, to whom attendees could submit queries either ahead-of-time or electronically. If GPs are concerned about getting pelted with tomatoes, this could also be done as a formalized online chat.

None of this would absolve indirect LPs of their responsibility to voice concerns via traditional representatives, but it would also recognize the reality that many such reps believe that their job begins and ends at ROI. It also could help GPs become more cognizant of indirect LP concerns, so that they don’t first hear about them via organized protest action.

I think this concept is deserving of more thought – both mine and yours. Could something like this work? Would GPs ascent? Would indirect LPs? Best practice? Interested in your thoughts, either via email or in the comment section at peHUB.