General partners putting money where investments are
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • KKR lifts out 3 to focus on clean energy infrastructure
      Richard Johnson
      Appian Capital Advisory adds global investor relations head
      Alternative investment funds faced liquidity squeezes in COVID-19 crisis and 2019
      CI Financial launches global real estate, infrastructure joint venture
    • Callan brings on 2 executives
      Hub International agrees to buy Plan Sponsor Consultants
      Aon names public markets solution leader
      Deloitte to acquire Sydney-based consulting firm Rice Warner
    • BofA: Most managers bullish on economy, markets
      Alternative investment funds faced liquidity squeezes in COVID-19 crisis and 2019
      Jerome Powell, chairman of the Federal Reserve, listens during a Senate Banking Committee hearing in Washington on Dec. 1, 2020
      Fed saw some time before taper conditions met – minutes
      International Monetary Fund and World Bank spring meetings signage at the IMF headquarters in Washington
      IMF upgrades global growth forecast, warns of diverging recoveries
    • Pentegra launches pooled employer plan
      Teresa Hassara
      Ascensus taps MassMutual alum as new FuturePlan president
      Economic Group Pension Services scoops up third-party administrator
      OregonSaves gathers $100 million in assets
    • Tracker gives investors insight into progress on social commitments
      Shoppers wear protective masks while visiting an Apple Inc. store at George Street in Sydney, Australia, on June 24, 2020.
      Apple backs SEC mandate on climate disclosure
      Emissions rise from the Kentucky Utilities Co. Ghent generating station in Ghent, Ky.
      Investors, businesses call for ambitious emissions goals
      Signage for Temasek Holdings Pte. is displayed during a news conference following the company's annual review in Singapore
      Temasek, BlackRock partner to launch carbon-cutting funds
    • Ken Griffin
      Ken Griffin donates $5 million to give Miami students internet
      New book culls institutional wisdom from podcast series
      Fearless Girl
      SSGA’s Fearless Girl statue now shattering glass ceiling
      Tangen video
      Norges chief dons chef’s hat to boost employees’ spirits
    • Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      Hedge funds post best first-quarter return since 2000
      Jason Kephart
      Managers see good times ahead in 2021
      Jev Mehmet, CEO of Brevan Howard's Coremont unit
      Brevan Howard runs $50 billion unit like BlackRock’s Aladdin
    • Connecticut earmarks $200 million to 4 alts funds
      Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      SSGA selects head of continental Europe for global institutional group
      Ontario Municipal promotes from within for new global equities exec
    • SSGA selects head of continental Europe for global institutional group
      BofA: Most managers bullish on economy, markets
      The Absa Group logo displayed in Pretoria
      Absa shuts $6 billion mutual fund, sparking spinoff speculation
      Mirova adds proxy voting and engagement leader
    • Ontario Municipal promotes from within for new global equities exec
      Kansas City Employees adopts global strategy with small-cap swing
      Michael C. Viteri
      Arizona appoints new CIO
      A £10 sterling bank note with a pound coin and a ballpoint pen, with focus on the word 'pension.'
      U.K. defined benefit plans’ surplus surges in March
    • Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      SSGA selects head of continental Europe for global institutional group
      Ontario Municipal promotes from within for new global equities exec
      Mirova adds proxy voting and engagement leader
    • Bills of euro, dollar and pound currencies, among others
      Ardian closes latest buyout fund at $8.8 billion
      Hand typing on stationary iPhone at an office reception desk
      Private equity’s taste for tech spurs $80 billion deal spree
      Vista Equity promotes 2 to leadership roles on 2 funds
      Azimut takes minority stake in HighPost
    • CalSTRS indutrial property
      Investors hungry for industrial properties
      Tim Wang
      GLP names co-president of logistics, industrial real estate for China
      Frank Forster
      StepStone Real Estate adds managing director for Europe
      Christine Iacoucci
      BentallGreenOak promotes from within to fill Canadian CIO role
    • Andy Schreiner
      New PEPs targeting firms without retirement plans
      Jackie Walorski
      Contribution catch-up for caregivers gaining favor
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
    • Corporate pension contributions
      Eddy Awards 2021
      COVID-19: One year in
      Charging Bull, sometimes referred to as the Wall Street Bull or the Bowling Green Bull, a bronze sculpture that stands on Broadway just north of Bowling Green in the Financial District of New York City
      Top-performing managers Q4 2020
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Connecticut earmarks $200 million to 4 alts funds
      Orlando pension funds pick Axiom for emerging markets equity
      St. Louis Public Schools assigns $5 million to value-added real estate
      BayerInvest taps BlackRock to run ESG-focused private debt allocation
    • Connecticut earmarks $200 million to 4 alts funds
      Orlando pension funds pick Axiom for emerging markets equity
      St. Louis Public Schools assigns $5 million to value-added real estate
      BayerInvest taps BlackRock to run ESG-focused private debt allocation
    • Passive Investment Management Services
      Active Extended Global Credit Manager Search
      Actuarial Services
      Investment Management Services
    • Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
      Stable value retains edge over money market funds
      Taiwan Semiconductor’s No. 1 in the emerging markets book
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • CalPERS cartoon
      Urgency underscores CalPERS' search for a CIO
      Multiemployer plans cartoon
      Money — but no fixes — for multiemployer plans
      Vaccination cartoon
      Rallying to meet the ongoing COVID-19 challenge
      Tesla cartoon
      Don’t confuse wealth creation with retirement saving
    • Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
      COVID-19 Makes LP Portfolio Management More Important Than Ever
      China: the outlook is bright for longer-term investors
      Finding Differentiation in Securitized Assets
    • Greg Shea and Steven Kindred
      Commentary: The solution for yield-seeking allocators may be hiding in plain sight
      Jim Park
      Commentary: Asian Americans, Pacific Islanders face ‘bamboo ceiling’ in money management
      Jared Gross
      Commentary: Anchors and allocations – breaking the grip of 60/40
      Peter Marber
      Commentary: Is it time for an emerging markets rally?
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • P&I Content Solutions
      Research for Institutional Money Management
      P&I Content Solutions
      Top questions for institutional investors
      Sponsored Content By Newton Investment Management
      Growth and Innovation in Emerging Markets
      P&I Content Solutions
      In Challenging Markets, Systematic Global Macro Strategies Could Hold Opportunity
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:23
      The passive fixed-income glut
      watch video
      1:38
      Is it time for DC plans to embrace private equity?
      watch video
      5:39
      The coronavirus pandemic: One year later
      watch video
      0:45
      Private funds weathered 2020 turmoil
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Understanding the PEP Evolution
      Divest or engage?
      Innovations in DC: Helping supercharge retirement outcomes
    • POLL: The Biden infrastructure plan
      POLL: Retirement income solutions
      POLL: Working after the pandemic
      POLL: The year ahead for the 1,000 largest U.S. retirement funds
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
  • Events
    • Conferences
    • Webinars
    • DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Understanding the PEP Evolution
      Divest or engage?
      Innovations in DC: Helping supercharge retirement outcomes
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. ALTERNATIVES
March 20, 2017 01:00 AM

General partners putting money where investments are

Arleen Jacobius
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Alexander Navab says KKR's action shows confidence in its funds.

    Some of the most established private equity firms are starting to risk a bit more of their own money alongside their limited partners, finally acceding to limited partner desires that their interests truly be aligned.

    In March, KKR & Co. turned heads when it made a whopping 10% commitment — including employee capital — to its latest flagship fund, the $13.9 billion KKR Americas XII. That's a major increase from the 7.84% average general partner commitment to vintage alternative investment funds in 2016, which itself was up from 6.96% in 2015, according to London-based alternative investment research firm Preqin. Only 2% of the funds raised in 2015 and 2016 had GP commitments of 7% to 7.99% and 4% of those funds had GP commitments of 6% to 6.99%. The 2015 and 2016 vintage funds mainly — 48% — had GP commitments of between 1% and 2.99%.

    For KKR's latest fund, the firm invested $1.4 billion, with $1 billion coming from balance sheet assets and $400 million from employees, said Alexander Navab, KKR member and head of Americas private equity.

    “(Our) having skin in the game will be a great thing for our investors,” Mr. Navab said.

    The large sum also shows KKR and its employees have a lot of conviction concerning the fund's success, he said.

    When KKR began raising the fund, executives planned to commit $750 million in firm and employee capital, but the commitment rose as fundraising progressed. In the prior North American private equity fund, KKR committed about $500 million in combined capital.

    And over time, employees generally committed additional money in deals during the fund's life, he said.

    KKR invested a large sum in its newest fund in part because it can, Mr. Navab said. “We have a very large balance sheet compared to others. I think on both fronts (the firm and KKR employees), it shows a lot of commitment and a lot of conviction.”

    KKR executives also believe increasing the firm's commitment to its fund was “the best use of resources,” Mr. Navab said.

    KKR has been slowly increasing its GP commitment. In its two most recent flagship funds in each region, that commitment averaged 7.4%, up from about 3% in earlier funds. Since 2000, KKR's flagship funds — including its global, European, Asian and North American private equity funds — together averaged 6% in GP and employee commitments.

    By comparison, The Blackstone Group LP committed about $500 million to its latest fund, the $18 billion Blackstone Capital Partners VII, with half from employees, said people close to the firm. Johan Oberg, a senior partner in the Stockholm office of The Boston Consulting Group, in an email said it seems general partner commitments appear to be trending up, “driven by a combination of macro-sector conditions and the shifting alignment dynamic between GPs and LPs.”

    KKR is expected to make a 10% commitment to KKR Asia III and Leonard Green & Partners' senior partners committed $500 million to its 2016 buyout fund, the $9.6 billion Green Equity Investors VII L.P., amounting to roughly 5% of GP capital, Mr Oberg said.

    “The condition we see is higher competition among GPs, growing LP bargaining power and tighter regulation on the alternative asset management space overall,” he noted.

    Private equity fundraising remained fairly strong last year, with the amount of capital up 5% to $345 billion for 807 funds, from $328 billion for 944 funds in 2015, according to Preqin. Still, the 2,965 alternative investment funds in the market seek to raise a combined $1 trillion.

    A meaningful general partner commitment is important to investors, Mr. Oberg wrote. “It is perhaps the best indicator of GP/LP alignment and provides a source of comfort to LPs, knowing that decisions undertaken (with regard to) various portfolio companies will be unencumbered by any other motivation other than to secure an optimal financial return for investors.”

    In its most recent version of the private equity principles, the Institutional Limited Partner Association, a Washington-based investor group, stated that general partners should commit a “substantial equity interest in the fund to maintain a strong alignment of interest with the limited partners, and a high percentage of the amount should be in cash as opposed to being contributed through the waiver of management fees.”

    Private equity firms consider their general partner commitment a good investment, said Michael J. Moy, managing director of consulting firm Pension Consulting Alliance, Portland, Ore. “The more successful (firms) have the available capital and are convinced that they can earn more in funds they manage than elsewhere,” Mr. Moy said. “LPs always like to see alignment of interests and the more the GP commits (in cash, not fee waivers), the better.”

    TorreyCove Capital Partners LLC., a San Diego-based private equity consulting firm, generally has found that more established firms generally commit 2% of total fund capital, with smaller or newer firms committing 1%. In the past, the larger private equity firms had enough capital to fund a portion of their general partner commitment with the fund's management fees.

    “Management fees should be funding the operations of the firm,” said David Fann, president and CEO in the New York office of TorreyCove. “For most smaller firms, there isn't much left after paying for salaries, rent, travel, lawyers, etc. ... For much larger funds, there can be a profit, which can be used to fund a part of the GP commitment.”

    This scenario is complicated by private equity firms' use of management fee waivers, in which the firm rolls a part of its management fees into a part of its GP commitment. This practice converts ordinary income tax treatment of management fees into the lower capital gains treatment of GP commitments. This practice is discouraged by tax attorneys, Mr. Fann said.

    A higher GP commitment can be a difference-maker for investors deciding between two funds. “Some of it may relate to the success a firm may have had over the years, and reinvesting profits,” Mr. Fann said. “It can be used as part of a marketing message to demonstrate commitment and belief in their skills as investors. There's a perception that GPs work harder and are more deliberate when a significant part of their net worth is tied to a fund.” n

    Related Articles
    KKR closes latest flagship fund at record $13.9 billion
    Private equity: a state of constant renewal
    University of California endowment doubles private equity in new asset allocati…
    Commentary: Convertibles – capture the upside with downside protection
    Investors seeing big promises from secondary market
    Commentary: Going over waterfalls in a better barrel
    Recommended for You
    KKR lifts out 3 to focus on clean energy infrastructure
    Appian Capital Advisory adds global investor relations head
    Appian Capital Advisory adds global investor relations head
    Alternative investment funds faced liquidity squeezes in COVID-19 crisis and 2019
    Alternative investment funds faced liquidity squeezes in COVID-19 crisis and 2019
    Top questions for institutional investors
    Sponsored Content: Top questions for institutional investors
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
    COVID-19 Makes LP Portfolio Management More Important Than Ever
    China: the outlook is bright for longer-term investors
    Finding Differentiation in Securitized Assets
    Green and sustainable bonds in emerging markets
    Portfolio Protection: One Size Fits None
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    April 5, 2021 Page One

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center