Are Limited Partners Getting the Upper Hand?
On March 1, 2010, Dr. Susan Mangiero, CEO of Investment Governance, Inc. sat down to talk to financial and strategy expert, Mr. Pascal Levensohn. In this sixth question of ten, read what this Investment Governance, Inc. Advisory Board member has to say about the balance of power between institutional investors and venture capital fund managers. Click here to read Mr. Levensohn's impressive bio.
SUSAN: You have some thoughts about contract terms. Do you think the trend is shifting in favor of institutional limited partners ("LPs") to receive better terms as venture capital ("VC") fund investors?
PASCAL: Certainly as the sources of capital have become more selective and scarce, the general partners ("GPs") have had to become more aware of LP concerns over terms. While the GPs in top tier funds will still be able to maintain favorable terms (and LPs will always want to get into their funds), even these GPs have made some concessions to maintain a supportive investor base. For example, recent press reports have indicated that at least two prominent funds lowered their "premium" carry structures, making the payment of a 30% carry rate subject to the return of a multiple of the investors' capital. For those other funds that are not oversubscribed, there will undoubtedly be some pressure on terms. Though there has been a lot of talk about the terms suggested in the recent guidelines published by the Institutional Limited Partners Association ("ILPA"), these guidelines have not fully caught hold (and some proposed terms –like joint and several liability on clawbacks — may be seen as too extreme). Still, in the current fundraising environment, there will certainly be some movement to provide an alignment of interests between LPs and GPs, while trying to maintain the appropriate incentives for the GPs.
