Economics

Liquidity In Private Equity Funds: Are LPs And GPs Aligned?

Please click here to view a survey released today by 17Capital showcasing perception towards liquidity in private equity funds.

  • This survey completed by 17Capital confirms that levels of satisfaction with liquidity differ pronouncedly between Limited Partners (LPs) and General Partners (GPs).
  • Findings also reveal that the secondaries market does not meet liquidity needs for the majority of LPs; as most would actively consider alternative options.
  • Only a few GPs today offer liquidity services to their investor base – a trend that should increase with time as General Partners look to differentiate through offering to investors.

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Key survey findings:

  • LP-GP misalignment on liquidity pace
    Limited Partners and General Partners have profoundly differing views on the pace of liquidity from their mature funds. Some 60% of LPs vs 21% of GPs surveyed expressed dissatisfaction with liquidity from their more mature private equity funds.
  • Majority of LPs’ liquidity needs not met by the secondary market
    More than 60% of LPs believe the secondary market does not meet their liquidity needs; 69% feel it is burdensome to ‘sell on the market.‘
  • Majority of LPs would consider alternative liquidity options
    Two thirds of LPs currently use or would consider using alternative liquidity options to a secondary sale, such as preferred equity or debt tranches.
  • Few GPs offer liquidity services to their investor base
    Only 1 in 5 GPs currently offers a liquidity service to their investors. Most GPs feel it is ‘not a necessary service.’

Pierre-Antoine de Selancy, Managing Partner at 17Capital commented: “Investors have spoken: many are simply not content with liquidity from their mature funds or with the secondary market meeting their liquidity needs. Unsurprisingly, the majority are now exploring alternative ways to achieve those objectives. While only a few GPs currently provide liquidity management services to their investors, it is surely only a matter of time before they have to fully integrate this into their service offering.”


Liquidity In Private Equity Funds: Are LPs And GPs Aligned?

Executive summary

17Capital’s survey on Liquidity in Private Equity Funds explores the views of more than

50 Limited Partners (LPs) and General Partners (GPs) in Europe and North America.

Key findings

Private Equity Funds

LP-GP misalignment on liquidity pace from mature funds

Over two thirds of mature funds (2007-09 vintages) have not returned paid-in capital to investors, according to data from Preqin, a provider of intelligence on alternative assets.

LPs and GPs have strikingly different views on the pace of liquidity from their mature funds: 60% of LPs vs 21% of GPs express dissatisfaction.

“We have had an excellent ‘sellers’ market’ for the last 4-5 years and mature funds have not been able to return capital. Is this because GPs were too slow to deploy capital post-crisis or are they really bad at exiting?

GPs should have distributed much more back to LPs.”

Jas Sidhu, West Midlands Pension Fund

Private Equity Funds

Majority of LPs’ liquidity needs not met by the secondary market

More than 60% of LPs believe the secondary market does not meet their liquidity needs; 69% feel it is burdensome to sell on the market.

“A secondary sale requires long preparation and is not yet a safe bet when looking for liquidity.”

Alessandro Tappi, European Investment Fund

“The use of the secondary market is burdensome on LPs and is not sufficient as a sole means to provide liquidity. Alternative liquidity products are a beneficial development in the industry.”

UK Public Pension Fund

Private Equity Funds

Majority of LPs would consider alternative liquidity options

Two thirds (67%) of LPs currently use or would consider using alternative liquidity options to a secondary sale, such as preferred equity or debt tranches.

“It is a matter of when, not if, liquidity options become market standard.”

Mid-market European GP

“[The findings] suggest that other tools to manage liquidity issues are required.”

Mid-market UK GP

“We see preferred equity providing a valuable role here, allowing accelerated cash-returns to LPs without the need for a secondary sale at a discount.”

Richard Clarke-Jervoise, Stonehage Fleming

Private Equity Funds

Few GPs offer liquidity service to their investors

Only 1 in 5 GPs offer a liquidity service to their investors. The majority of GPs feel it is not a necessary service.

“GPs with a longer term perspective recognise that offering liquidity options will become a permanent feature of the market in future. Optimising investors’ liquidity, particularly in advance of a new fundraising, should become part of the GP’s toolbox.”

Mid-market European GP

Private Equity Funds

See the full PDF below.


For more information and or to speak with Pierre-Antoine de Selancy further on this development today / make an introduction, please call +44 (0)7912 508 322 or respond to this email and we’d be delighted to assist further.

Best regards,
James

Notes to the Editor:

17Capital is a leading global private equity specialist focused on financing successful investors in private equity. Having pioneered and brought its offering to the market a decade ago, 17Capital has to-date provided €1.3bn of capital to investors looking to unlock liquidity or accelerate the growth of their portfolios.

With 25 professionals in London and New York, 17Capital continues to innovate and lead the market as the only dedicated provider of flexible financing with a global reach. The firm manages €2.0bn of assets raised from institutional investors across four successive funds.

James Culverhouse

Junior Partner & Head of Media Relations

T +44 (0)20 7223 1100

M +44 (0)7912 508 322

www.equusgroup.co.uk

To date, Equus has advised on more than 300 transactions, totalling €29bn of enterprise value and has supported numerous investor relations and brand management programmes. We look to partner with businesses, either on single mandate or a full advisory basis, that do not compete directly with other clients, and where we are confident that we will add real value.

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