Fees at buy-out funds: Private inequity

Investors push for more favourable fees and terms, and get them“THERE’S never been a better time” for institutional investors “to press our case”, says Joseph Dear, chief investment officer of CalPERS, America’s largest public-pension fund. “We’re determined to make the most of it.” So far Mr Dear has been true to his word. Last month CalPERS persuaded Apollo Global Management, a large private-equity firm, to scrap $125m in fees over five years. Mr Dear plans to bargain aggressively with other private-equity firms (known as “general partners”) to bring down fees, and he has urged other investors (“limited partners”) to do the same.During the buy-out boom, general partners could levy high fees and investors would still flock to them. But now fund-raising is a challenge. Private-equity firms raised a paltry $50 billion in the first quarter of this year, compared with nearly $167 billion in the first quarter of 2008 (see chart). Investors are banding together to get better deals. In September the Institutional Limited Partners Association (ILPA), a network of institutional investors in private equity, issued a set of best practices that general partners should consider accepting if they want limited partners’ business. It calls for greater transparency, more favourable contractual terms and more generous profit-sharing. It is hardly “The Communist Manifesto”, but it has sent ripples through the industry. ...