The Institutional Limited Partners Association is evaluating risks associated with GP-led secondaries transactions with a view to offering guidance to its members.
In an exclusive interview with sister title Private Equity International, ILPA’s new chief executive Steven Nelson said the industry body’s increased focus on this part of the market has come at the behest of its members.
GP-led secondaries transactions are increasingly on LPs’ – and the US Securities and Exchange Commission’s – radars. In the last year several high-profile fund managers have taken advantage of the secondaries market to restructure older funds, with that part of the market reaching $14 billion last year, according to data from advisory firm Greenhill.
As with credit line usage, this is an emerging issue that has split the industry both along GP-LP lines and also among LPs with different agendas.
In February ILPA organised a webinar for its members on GP-led fund recapitalisations as a direct result of LPs’ interest in the issue.
“Our focus has been on how to evaluate the risks associated with GP-led transactions, how to be sure LPs are identifying the right sort of information they should be requesting in order to make an informed decision, and – stating the obvious – being aware of and sensitive to potential conflicts that can exist in those types of transactions,” Nelson said.
“It’s something we’ve spent time on already and I suspect it’s an area where there’ll be more to come.”
The work ILPA did to spell out best practice on subscription credit facilities and highlight the right questions for LPs to ask their managers undoubtedly moved the debate forward and promoted open discussion.
Understandably the guidelines were not glowingly received by every participant in the market; one common complaint among GPs is that any sort of standardisation undermines the idiosyncratic nature of private funds. But the document was not designed to win friends among GPs, so grumbles of “one size not fitting all” do not necessarily hit home. Instead it is about educating LP members.
The association is likely to issue guidance on fund restructurings and this, too, probably won’t be greeted with universal warmth. Nelson’s reputed consensus-building reputation, as well as his technical nous, will be tested.
– Isobel Markham contributed to this report.