LPs look beyond the fee debate in Asia - AVCJ Forum

During a panel discussion on the evolution of LP-GP relations at the AVCJ Forum in Hong Kong, LPs said that while fees continue to be high on the agenda, it is still one of several areas of focus.

"It is a balance of a number of things," said Marcus Simpson, head of global private equity at Australia's QIC. "We are trying to get the dynamics right for a long term relationship."

He said that while the market - particularly in Australia - continues to be very fee-focused, it was important that GPs have the tools and resources to generate returns. In this context, co-investment rights have become equally if not more important than getting management fees down as LPs try to reduce costs.

Mounir Guen, CEO of placement agent Mvision, added that many smaller funds - unable to offer co-investment rights but still facing high operation costs - often felt under pressure to follow suit with larger funds with regards to LP terms. However, he said this was a misconception.

This stance was echoed by Jean Potvin, investment manager with Quebec pension plan CDPQ, who said it was more a matter of selecting the right GP.

"In our program we tell some of our GPs that we know perfectly well they are not going to be able to provide co-investment and, based on their strategy, we are okay with that," he said. "Our first priority is that we are comfortable with the competence of the GP and if we try to negotiate more realistic terms, it is on a case-by-case basis."

However, Olivia Ouyang, managing director and head of emerging markets at China Investment Corporation, made the point while it was important to they pay attention to size of the fund when negotiating fee levels and co-investment rights, it is still important to ensure interests are aligned.

"We do ask for a budget of the fund to make sure the fund manager is making money from carry and not from mangement fees so there is the right mechanism to incentivize people," she explained.

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