Fundraising: Coming back slowly

For all the reports of certain funds – step forward, CDH and SAIF – attracting outsize levels of interest, the underlying trend may still be a gradual, partial and highly preferential recovery.

According to this view, 2010 has not so far seen a glut of closings indicating LP money just waiting for the New Year to be released. Not only are some firms still finding LPs unresponsive, they are also having to offer incentives and preferential treatment to draw them in. LPs are looking for comfort and reassurance in the form of good stories and added bonuses that they can show to their investment committees, who are still risk-averse and slow to redeploy capital.

Also, many of the marquee Asian closings of the year so far seem to have access to China money or other – usually Asian – sources of capital outside the traditional private equity LP ambit. Problems lingering from the GFC, sources suggest, are still constraining traditional LPs from releasing new money into the market. Even with the denominator effect and other short-term problems largely digested, the deeper issues of portfolio rebalancing and over-allocation strategies still need much work. And as GPs struggle to loosen the LPs’ purse strings, the previously-accepted one-size-fits-all compensation structures and terms and conditions applied in GP/LP relations are being challenged more and more.

The situation is even getting to the bizarre point of inexperienced first-time fundraisers being more attractive to LPs than established funds. The crux is that the former may have strong dealmaking pedigrees from their previous M&A, banking, corporate or other backgrounds – while the latter may have legacy portfolio issues left over from the boom-and-bust years of 2005-08. In these circumstances, it appears, no track record can be better than a recent one.

Institutional investors will invest, sources emphasize, if only because they have to. Investment is their raison-d’etre, and the bread and butter of their teams. However, for the time being, they will move money in the lowest-risk way they can find. And low risk in their view may mean the GP providing an extra reward.

This is only one take on the market: others report a different experience. But it certainly suggests that the recovery may be longer in coming than many think – despite the success of a few isolated star vehicles.

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• Topics
• Fundraising
• Funds
• Renminbi fund
• Performance