These are opportune times to be holding the cash that private equity funds want.
Most private equity fund sponsors that are out raising money this year know it's an investor's market. Just ask John M. Saada, a partner at Jones Day in Cleveland who advises on private equity matters.
“Most sponsors realize that it's more important to get a fund closed than to argue with their investors,” Mr. Saada said.
Limited partners are receiving a greater share of the fees that portfolio companies pay to general partners, and they're demanding — often successfully — that GPs delay collecting any profit as portfolio companies are sold until investors are paid back their investments.
According to Preqin, a provider of information for the alternative assets business, more than 1,870 private equity funds are seeking capital worldwide. Industry experts say a combination of more funds pursuing capital and fewer investors willing to put their money into them has led to friendlier terms for limited partners.
“When everyone's pockets were lined with cash ... then Blackstone (the private equity behemoth) didn't really have to listen” to investors' desires, said Tim Milanich, director of private investments for Case Western Reserve University's Office of Investments, Cleveland.
“In the past, they'd say, 'Well, we have six people behind you that will take' an investment on our terms," Mr. Milanich said.
That's not the case any longer.
“You're not going to see private equity firm managers building houses in Hawaii because of the management fees” they collect, Mr. Saada said. “You'll see the general partners making a little less than they did in their heyday.”
Resilience Capital Partners in Beachwood, Ohio, which last month announced the closing in May of a $222.5 million fund, is sharing a greater percentage with investors in this fund, said Bassem A. Mansour, co-CEO of the private equity firm. He characterized the increase as moderate.
Linsalata Capital Partners in Mayfield Heights, Ohio, closed on its sixth fund in June. According to Eric V. Bacon, co-president and senior managing director, Linsalata held steady on its management fee, but is sharing “modestly” more of the transaction and advisory fees paid to it by portfolio companies.
“We're retaining less and less for ourselves,” Mr. Bacon said.