IQ-EQ recently teamed up with Brackendale Consulting to explore LP perspectives on ESG and the viability of fund manager compensation levels in a changing macro-economic climate.
Together, we have conducted market research to produce a report on LP reactions to the costs inherent in the private equity fund investment process, and whether current GP compensation levels are acceptable in a higher rate environment.
We surveyed LPs from across Europe, North America and Asia from leading insurance firms, pension companies, family offices and fund-of-funds. A resounding majority of the LPs surveyed thought that GP compensation should be linked to ESG-related incentives. What’s more, LPs largely felt they held very little influence in fundraising negotiations.
A third of LPs questioned the relevance of the 2:20 private equity fee model, and they believed a fund’s track record and team were deemed more important than fees, with a key criticism stating the 2% management fee should be paid to fund managers regardless of fund size or performance.
As firm believers in ESG and the use of technology to streamline the investment process, we are glad to see LPs are in agreement. With a majority of LPs wishing their GPs to invest in new technology, a further quarter proposing the outsourcing of admin and middle-office solutions, and many demanding better procedures for collecting and reporting ESG data, we are seeing a clear push to improve the LP-GP relationship through innovation.
For the full findings in the report, you can read it here: