Majority of LPs say restructurings pose conflict of interest

Restructurings are supposed to be a win for all parties involved, but most LPs believe they better serve GPs' interests, a new Palico survey finds.

More than two-thirds of limited partners believe private equity fund restructurings pose conflicts of interest, according to the results of a survey conducted by Palico and released in October.

About 68 percent of LPs responded that they felt general partners were potentially not fulfilling their fiduciary duties when it comes to restructuring a fund, compared with 34 percent of GPs who believe there is a conflict, according to online private equity fund marketplace provider Palico‘s Fall 2015 Global Private Equity Compass.

“There is a good deal of suspicion out there among LPs about whose interests are being served in these deals,” said David Lanchner, a Palico spokesman. “For restructurings to occur, the GP needs to sign off on it, so often the GP is perceived as having a lot of leverage that they can use in their own self interest. Restructurings are seen as divorcing that alignment of interest that many LPs and GPs believe was there in the beginning because of the limit on fund life.”

While a third of GPs responded they believed the deals pose a conflict of interest, almost half agreed that restructurings deserve more regulatory scrutiny, the survey noted. Meanwhile, 58 percent of LPs think fund restructurings merit regulatory scrutiny because of their potential to unfairly disadvantage investors.

“There’s clearly pressure for GPs to prove that they’re not self-serving when they propose restructurings, and it indicates a serious degree of lack of satisfaction by LPs,” Lanchner said.

Source: Palico.

Source: Palico.