The LP Report Card –

Once a year we ask LPs worldwide to help evaluate the big issues in the private equity industry. (See Cover Story, this issue.) It is an anonymous or blind survey in which we only publish aggregate results. During our monthly stories about individual LPs we make our best effort to get LPs on the record with the issues they’re concerned about. Here’s what Christoph Manser, who runs the private equity portfolio for Swiss insurance company Winterthur Group, had to say.

Deployments & Exits

“Deployment pace depends upon the market and the strategy [of our managers]. There is a steady flow at some firms, but it’s slower for others. It also depends upon the market. It’s slower in France, but faster in Germany. In terms of exits, or realizations, we’ve been getting a lot of cash from exits over the last 18 months. It’s extremely strong on the buyout side. Strong cash flows.”

Managment Fees

“They’re stable: 1.75% for buyouts and 2.5% for venture funds.”

Carry

“Fees for our managers are going up, but that can be interpreted as us improving the qualifications of our GPs. In general, fees are relatively stable at 20% for venture capital. There are those, of course, with 30% or more and they aren’t changing.” Manser adds that the carry split is moving in favor of LPs and that an 80/20 split has become the market standard.

Valuations & Write-downs

“Winterthur wants to have transparency regarding a fund’s portfolio companies, however it is not a fan of a mark-to-market approach. The “multiple” approach to valuations, can lead to unwanted volatility, especially when the peer group is affected by idiosyncratic events.”

Succession

“It’s hard to generalize, but it is definitely an issue. When we evaluate a fund, we want to know if there are succession issues going forward with the firm. We do a thorough risk assessment based on succession issues. For GPs that have multiple offices, we look individual offices.”

Terms and Agreements

“Key-man provisions, financial considerations, especially waterfalls and hurdles, and no-fault divorce. We’re looking at all of those pretty closely right now. The waterfall is [topical]. Historically, buyouts want a fee after one successful deal, but we want the investment returned first and a hurdle met for the use of our capital.” Manser adds that deals were historically front-loaded in favor of GPs, but they’re moving back in favor of LPs today.