To market, to market, to market we go

By AVCJ Research's count, over 380 firms are raising Asia-dedicated, or in part Asia-earmarked, funds. Those with a considerable track record have, at least anecdotally, had an easier time getting firm commitments, while those still sorting through some of the wreckage of the past 18 months have had to do a bit more selling.

Academics from MIT argue that boom years in private equity lead to lower returns, and that buyout funds tend to fare the worst coming out of that cycle. Common sense, right? One would think; but when the iron is hot, the desire to strike often overtakes logic.

In recent conversations, a number of LPs and some of the more reflective GPs noted that the crisis had not actually lasted very long, and that in some countries, other market factors were at play and thus the country was relatively insulated. They all expressed concern about what this might mean for a change of perspective within the industry, or a lack thereof.

So what of leverage, easy money and an eye for the bull, not the bear? And what about all those fees? In a draft proposal submitted recently by Clearwater Capital Partners to CalPERS as part of the latter's review of placement agent usage by its invested GPs, the fees requested by at least one leading placement agent for Clearwater's 2004 fundraising for Fund II call into question what is reasonable and what is not. At $20,000 per month retainer, a cash fee of 1.25% of legally binding capital and loan commitments, 25% of the private equity base success fee, 12.5% of any carried interest, fees for shared investors, rejection fees, fees in the event of termination and out-of-pocket expenses, it would have been a wonder if Clearwater had anything left to work with.

While these terms are par for the course, should they be? Industry standard does not always translate into best practice. In the same vein, just because firms have come out the other end of a particularly grueling downturn does not mean they did nothing wrong.

As the saying goes, the proof is in the pudding, and so will be the evidence of any thoughtful introspection once announcements of final closes are released and investments start being made. The year 2010 could be more than simply a year of good vintages, but only if humility replaces hubris as every MD's favorite trait.

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• Topics
• Funds
• Fundraising
• Clearwater Capital Partners
• California Public Employees' Retirement System (CalPERS)