GP-led fund restructurings can test loyalties between limited partners and their fund managers, according to Aberdeen Asset Management.
While GPs know how to best manage assets in a fund, LPs in restructuring processes can end up not being properly served, Mirja Lehmler-Brown, senior investment manager at Aberdeen Asset Management, told delegates at Private Equity International’s Women in Private Equity Forum on 21 November.
“[The GP will] know exactly what to do around some value creation aspects, but it’s not necessarily great if you’re an LP that sits in the structure and think ‘I was there for you 10 years ago’,” Lehmler-Brown said.
“You’re recreating a structure where, for all sorts of reasons, some LPs cannot follow the money. So it’s creating a bit of conflict as well to see… who should [the GP] look after.”
GP-led transactions fell in both value and as a proportion of the secondaries market during the first half of this year, accounting for less than 15 percent of market volume according to estimates from Greenhill Cogent in July. The decline was attributed in part to GPs shifting from fund restructurings towards a more LP-friendly tender offer-style process, Greenhill noted in its report.
High profile transactions this year include Apax Partners’ proposal to run a process on its 2007-vintage flagship buyout fund and Nordic Capital’s process on its 2008-vintage fund. Apax’s process was cancelled due to insufficient demand from limited partners in the vehicle, as Secondaries Investor reported.
Buyers are increasingly approaching GPs directly to find suitable fund candidates for restructurings, Lehmler-Brown added.
“Secondary funds are trying to be more proactive and not going to the LPs to try and buy stakes,” she said. “Actually working with the GPs is much quicker in order to try and get [the] GP themselves [to] come up with a new solution – a fund that they can target.”