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University of Texas Roundtable on LP Perspectives on the State of Private Equity
Author(s) -
Wiles Ken,
Tull Tom,
Halaska Chris,
Wanstrath Shelby,
Valdez Russell
Publication year - 2020
Publication title -
journal of applied corporate finance
Language(s) - English
Resource type - Journals
eISSN - 1745-6622
pISSN - 1078-1196
DOI - 10.1111/jacf.12421
Subject(s) - private equity , private equity fund , initial public offering , private equity firm , equity (law) , finance , economics , corporate governance , limited partnership , portfolio , value (mathematics) , club deal , investment (military) , private investment in public equity , rate of return , business , general partnership , law , machine learning , politics , political science , computer science
In this wide‐ranging discussion among four limited partner investors in private equity, the LPs commented on the rates of return they expect from PE, the fees they pay their general partners, and the length of their time commitments to PE investments. After noting the enormous growth in the value of assets under private management, and the reduction in public equity investment by many large institutional investors, each of the four LPs said that their institutions expected to maintain or continue to increase their proportion of portfolio investment in PE. The LP panelists were virtually unanimous in expecting PE rates of return in the 9%‐11% range, as compared to 7%‐8% for public equities. The panelists also seemed to agree that although committing to PE investments for terms longer than the traditional seven to ten years could result in higher returns and lower costs, they were reluctant to make such commitments because they valued the financial flexibility afforded by shorter holding periods. Several LPs claimed that their institutions were scrutinizing the explicit and implicit fees charged by the GPs, and the level of fees was encouraging LPs to co‐invest in deals alongside the GPs. And in response to a closing suggestion that the recent flurry of IPOs could signify the beginning of a major reversal away from private capital, another LP expressed strong doubt, noting that “the private ownership model has clearly shown superior governance, and greater ability to manage leveraged capital structures and create value than public companies over the long term.”