The Faculty Spotlight with: Soren B. Andersen, Partner, ATP PEP

Soren B. Andersen is a Partner with ATP PEP, the investment arm of the Denmark-based pension group. With the forthcoming Capital Creation meeting in mind, we spoke with Soren to hear his thoughts on the current private equity market and, in particular, the evolving relationship between GPs and LPs.

“There is still a fair degree of uncertainty as to how the private equity market will fare after the crisis” claims Soren. “There is a lot of pessimism surrounding fundraising and liquidity of LPs following a year in which many predicted a major shake up of the industry” - a shake up which, for Soren, has not played up to original expectations. “There was drastic talk that at least one third of GPs faced closure but this was no doubt exaggerated. Many GPs have in fact weathered the storm nicely and are performing better than expected”.

However, what cannot be disputed is the changing relationship dynamic between GPs and LPs following the recent economic crisis. “The focus on GP-LP relations has intensified recently with LPs demanding greater information-sharing, which in turn has surprised GPs since they feel increased disclosure of information is far too time-consuming”. Transparency as a requirement has certainly risen up the agenda once again, with LPs increasingly looking to hold GPs to account for non-performing portfolios. However, are these demands simply a case of LPs seeking to blame someone for non-performance? Is it not the case that, during more profitable times, very little mention - if any - was made of any lack of GP transparency? “I would not disagree; if we were still in a period of high returns and liquidity, LPs would not be airing such concerns to the extent we have witnessed recently”.

One aspect of the GP-LP relationship under particular scrutiny is the payment of management fees. “Having previously charged premium rates, many GPs are now beginning to realise they can no longer demand such high fees. As an LP, we believe there should be more performance-related pay rather than straight management fees since this is a far more feasible structure in the current challenging climate. Over the next two years or so, we may witness more and more GPs make concessions on fees in order to secure LP investment”.

For Soren, however, the GP-LP relationship should not only be characterised by GPs accepting the demands of idle LPs. Rather, LPs need to be more proactive towards GPs, co-operating with them to receive the right level of information. “LP advisory boards, for example, have a responsibility to the remaining LPs as well as themselves to be more active and secure greater transparency from GPs as a result. After all, it’s only one GP reporting to 50-plus LPs so if the latter are not active in the fund, it’s one-way traffic”. According to Soren, this is where the ILPA (Institutional Limited Partners Association) guidelines will help the industry. “We support these principles since, even though they will not prove an easy implementation, they will nevertheless provide LPs with a basis to be more proactive in collaborating with GPs in order to introduce increased transparency. Additionally, it will remove GP uncertainties surrounding LP requirements for visibility and information sharing, facilitating greater co-operation between the parties”.

The evolving GP-LP relationship will be high on the agenda at this September’s Capital Creation meeting, which Soren sees an important platform for networking. “For us it is important to keep in touch with both GPs and LPs to see where the private equity world is heading. As a pension fund, we will use Capital Creation to meet the key player in person and develop an understanding of the key industry developments”.

To find out how you can join Soren in Monte Carlo, or to simply to find out more information about this year’s meeting, please telephone +44 (0) 20 7368 9465.