Private Equity Fund Terms Report 2018 – Part I (Economics)

Part I (Economics) of the latest edition of MJ Hudson’s Private Equity Fund Terms Report is now available for download. The Report provides detailed analysis and insightful commentary from MJ Hudson’s LP Unit on private equity fund terms and the implications for both investors and managers. It includes comparisons with last year’s research, and discusses the drivers for any significant changes. Now in its fourth edition, the Private Equity Fund Terms Report provides an enhanced understanding of the fundamental economic and governance terms impacting private equity fund commitments.

Part I (Economics) analyses the levels and calculation methodology of management fees, and highlights innovations in carried interest models and the distribution waterfall (including catch-up). Deal-by deal enhancements (i.e. interim clawbacks, carry escrows and guarantees of GP clawback obligations) are also covered.

Key findings include:

  • Fund size continues to be the most significant determiner of management fee charged. 92% of targeted capital seeks an annual management fee of less than 2%, but some smaller funds are still coming to market with a headline management fee level of above 2%.
  • Almost one quarter (24%) of managers will provide fee discounts on the headline management fees, with commitment size much more likely to trigger a discount than anything else.
  • One in five European managers offer the deal-by-deal model but, conversely, a much bigger share of the Delaware based funds (36%) opt for the European style whole-of-fund distributions.
  • Despite anecdotal evidence of lowering hurdle rates, this remains an ambition for most GPs – 75% of funds still need to achieve an 8% return before they get into carry.

Eamon Devlin, Managing Partner of MJ Hudson | Law said:

“This year’s research dives even deeper into the data, providing LPs and GPs alike with the insights that really count. Our coverage of funds in the market and our experience working with both LPs and GPs means that we can provide our clients with a 360 degree view on the fundraising market – and we have drawn on this experience to enhance this report.”

Part I will be followed by Parts II and III, to be published later this year.

Part II (Alignment) discusses alignment between the manager and the investors: the size of the GP commitment, successor funds restrictions and management fee offsets.

Part III (Governance) describes current trends in the key investor protections: GP removal (with cause and without), key person events and the application of the most favoured nation treatment.

If you have any questions regarding the report or would like further information on MJ Hudson’s LP Unit and the services offered, please contact one of the team below.

DOWNLOAD PART I OF THE REPORT

This edition presents the MJ Hudson LP Unit’s review of key economic and non-economic terms across a significant sample of investment funds that recently came to market, where the MJ Hudson LP Unit advised either the manager or sponsor, or a prospective investor.

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