European LP Briefs, December 2011

One GP in Three Passes on Advisory Fees

Fees charged by private equity firms can be a sore point for limited partners, but that very much depends on the type of charge being levied.

Of 72 general partners responding to a recent Dechert/Preqin survey, more than one-third said they distributed all or most of their transaction and monitoring fees—the one-off and ongoing charges that portfolio companies pay—to their limited partners.

The report also shows that transaction and monitoring fees have risen since 2009, in many cases to above pre-crisis levels.

Sub-$500 million deals now average a one-time fee of 1.3% of deal size as well as ongoing fees totaling 2.2% of deal size.

For private equity transactions between $500 million and $1 billion, the acquired company typically pays a transaction fee of 1.1% of deal size, and monitoring fees of 1.5%.

However, about one-fifth of PE firms opted to keep all of those fees to themselves, while about half said they split them evenly between limited partners and general partner.

Law firm Dechert reported on the topic in 2008, but at the time did not reveal how firms allocated their fees.

CDC Dives Back into Fund Investment

U.K. development finance body CDC has announced its first two investments since a major government review of the organization.

Following a number of private equity participations in India over the years, CDC will anchor a new growth capital fund targeted at the country’s eight poorest states with $50 million.

Sector-agnostic, the Pragati Venture and Incubator Fund will invest from $5 million to $15 million per opportunity. CDC hopes it will attract other investors to impoverished regions, such as Bihar, where only 4% of the rural population has access to tap water.

CDC has also contributed $20 million to the Silverfleet Capital-managed Silverlands fund, which aims to grow to $300 million and invest in about 15 agribusinesses in Central and Southern Africa.

The concentration on sub-Saharan Africa and India’s least developed regions reflect a re-focusing of CDC operations towards areas that have failed to attract other investor interest.

LPs Offered Transparency Tool

Private equity investors seeking to cut through the self-promotion of general partners have a new tool to help.

Launched by software-as-a-service provider eFront, Pevara is a Web-based application that allows limited partners to benchmark and monitor the performance of their private equity holdings.

“The LP community has largely been under-served by technology providers, and is often simply expected to mould their business models into solutions designed for general partners,” said eFront CEO Olivier Dellenbach, in a statement.

The Pevara software, due for a full launch in early 2012, should also improve risk reporting for LPs and assist like-for-like comparisons, whether for existing or prospective investments.

These could even include eFront itself: the French company plans to go private following a majority purchase by San Francisco-based Francisco Partners in September 2011.

ILPA Outlines Reporting Minima for GPs

Efforts to improve transparency in the private equity industry have progressed with the release of a second set of standardized templates by the Institutional Limited Partners Association (ILPA).

For quarterly management reports, the ILPA has established a minimum disclosure level, under which general partners should, as a matter of form, send their investors: a balance sheet; a period-end schedule of investments; a statement of operations; statement of cash flows; and a partners’ capital account statement.

Supplemental management reports should also be released, including an executive summary at firm and fund level, a supplemental schedule of investments and portfolio company updates.

A vital component of the package would be a summary portfolio letter explaining, for instance, key drivers of performance in the portfolio.

The overarching aim of the letter and other reporting pre-requisites is to avoid the repeated requests for additional data that burden both general and limited partners.

They represent the second set of ILPA best practices following the release of guidelines for capital call and distribution notices in January.