Erik Hirsch: “GPs Are Essentially Service Providers”

He predicted he’d be misquoted and taken out of context, so I will try not to do that here. Very simply, Hamilton Lane chief investment officer Eric Hirsch believes that limited partners should not view private equity pros as partners. General partners, he said, provide a service to LPs, and should act accordingly.

Speaking in a keynote interview at Buyouts South in Boca Raton, Hirsch noted his comment might get him in trouble with some GPs, but nevertheless made the argument against the idea of a “parternship.” That phrase twists the real meaning of an LP-GP relationship, he said.

“The word “partner” makes it seem like an LP needs to support a GP even when things go awry, because they are partners,” he said. When in reality, investors have hired general partners to generate superior returns over a 10-year period and the relationship should be viewed as such.

“We (the investors) are clients, and the GPs are essentially providing us a service. I’m wording this as carefully as I can, but GPs are essentially service providers to LPs,” he said. The concept is particularly important when LPs are evaluating whether to re-up with an investor who has made a mistake. The emotional connotations of the word “partner” make it more difficult for an LP to say no and “let their partner down,” he said.

His comments were made in the context of the shift in LP-GP power, with the upper hand shifting away from GPs. His moderator asked if more GPs are laughing at his jokes in meetings, implying that commitment-hungry buout pros are kissing up to investors now that the fundraising market is difficult. “At the end of the day, I don’t care if a GP laughs at my jokes or not,” Hirsch said. “I only care about the performance of the capital I hired them to invest.”