NEWS & INSIGHTS


Jeff Davis quoted in LBO Wire: “Funds and Investors Wrestle Over Fees” by Simon Meads

An excerpt from the piece, including Jeff Davis’s quote, is below:

Private equity firms raised $495 billion in 2014, a sharp increase on the $295 billion raised in 2010 at the post-crisis trough, according to data group Preqin.

The reason is that investors are flush with cash that has flowed back from previous deals. But while the demand is high, some investor expectations have shifted for good. There may be less pressure to hammer down on management fees but big investors still want special treatment.

Co-investments–in which investors invest alongside a firm and avoid paying fees–are in high demand, and managers can no longer pocket fees extracted from advising their investment companies or selling them.

Jeff Davis, a partner at fund placement agent Eaton Partners, said: “There is still fee pressure. There was more fee pressure during the global financial crisis. It has ebbed a bit but it hasn’t gone away.”

Some 39% of investors cited management fees as their biggest cause for concern in a recent survey by Preqin. Still, the average management fee for buyout funds ticked back up to 1.90% in 2014 (and for funds currently raising capital in 2015) from 1.88% in 2013.

The biggest firms and the ones with the most chequered track records are feeling the pressure most acutely. Large investors are negotiating separate account mandates or can just use their size to get a better deal than the rest of the pack.

 

The full piece can be accessed by subscribers via LBO’s website: Funds and Investors Wrestle Over Fees

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