Pulse of LPs

Loads of LP stats on this snowy Wednesday.

Happy Wednesday! We tested the pulse of the LP world recently and came up with some findings. LP views are going to be top of mind in 2020 as the presidential race heats up and politicians scrutinize the industry.

One trend we’ve seen in the industry over the past few years, especially among established firms, is the creation of new strategies and funds outside of the firm’s primary mandate. This generally comes in the form of the creation of smaller funds focused on investing in smaller companies, or perhaps credit investments.

I’ve often heard from LPs, quietly, that they don’t love new product funds, but it also depends on how a GP approaches the creation of a new strategy. LPs prefer a firm to hire a team to run the new strategy, allowing the main team to continue its focus on the main fund, rather than split time. But even then, LPs express concern that a GP’s attention will be diverted from its main job.

Private Equity International’s LP Perspectives Survey, which surveyed 146 institutional investors, found that LPs have concerns around the potential for a GP to expand away from its main job. Around 68 percent of respondents said they’re seeing occasional examples of “style drift” among their GPs, up from 55 percent last year.

Meanwhile, 44.5 percent of respondents said selling a stake to an outside investor makes a GP less attractive, while 12.3 percent said such a minority investment makes them more attractive. Perhaps fittingly, 43.2 percent were unsure, which is sort of the reaction I get when I ask about GP minority stake investments: LPs understand owners can choose to sell a part of their business, but the economics of such deals can be concerning, especially when it comes to sharing fees and carried interest with a third party.

The survey also found that 73 percent of investors agreed fees charged by private equity funds are difficult to justify internally, up 10 percentage points from last year, Markham wrote. This is an interesting perception being that LPs are also eager to put money into private equity funds. With this sort of demand, GPs are not likely to budge on things like fees. Check out Isobel Markham’s write up here.

Top Scoops

Promote: General Atlantic promoted its head of China healthcare, Lefei Sun, to managing director, the firm said Wednesday. Check out the news brief here.

And, CPPIB executive Austin Locke, part of the direct private equity group, was recently promoted to senior principal with a focus on tech investing, writes Kirk Falconer. Check it out.

Veterinarian deals have been one of the main targets of private equity firms, with sky-high valuations. OMERS Private Equity is set to acquire Cortec Group’s Community Vet Partners, PE Hub editor Sarah Pringle writes. The deal is not formally announced. Check out the deal valuation and other particulars here.

That’s it! Have a great rest of your day. Hit me up as always with tips n’ gossip, feedback or just to chat at cwitkowsky@buyoutsinsider.com, on Twitter or find me on LinkedIn.