New private equity models: How should the interests of investors and managers be aligned?

Research output: Contribution to journalArticleScientificpeer-review

Abstract

The recent global turbulence in the credit markets had a severe impact on all aspects of the private equity industry. In response, lawmakers introduced legislation that subjects fund managers to a registration requirement and provisions targeted at improving fund monitoring and accountability. Yet, little is known about the post-crisis scrutiny of private equity funds by investors. In this article, we examine the post financial crisis trends in the private equity industry. The evidence indicates that investors’ demands for the inclusion of more investor-favorable compensation terms have begun to take hold in European funds. Fund manager responsiveness to the demand for better terms seems more general, extending to increased investor control over fund investment decisions. The new pattern also reveals the inclusion of more straightforward co-investment rights. Finally, our findings suggest that, besides the contractual “improvements,” investors want to see more skin in the game from the managers/general partners.
Original languageEnglish
Pages (from-to)1-27
JournalJournal of Financial Perspectives
Volume3
Issue number1
Publication statusPublished - 2015

Fingerprint

Private equity
Investors
Managers
Industry
Inclusion
Fund managers
Credit markets
Investment decision
Financial crisis
Responsiveness
Accountability
Registration
Monitoring
European funds
Turbulence
Legislation

Cite this

@article{5e01fbb16ded4902b3e8118be6cd1cf8,
title = "New private equity models: How should the interests of investors and managers be aligned?",
abstract = "The recent global turbulence in the credit markets had a severe impact on all aspects of the private equity industry. In response, lawmakers introduced legislation that subjects fund managers to a registration requirement and provisions targeted at improving fund monitoring and accountability. Yet, little is known about the post-crisis scrutiny of private equity funds by investors. In this article, we examine the post financial crisis trends in the private equity industry. The evidence indicates that investors’ demands for the inclusion of more investor-favorable compensation terms have begun to take hold in European funds. Fund manager responsiveness to the demand for better terms seems more general, extending to increased investor control over fund investment decisions. The new pattern also reveals the inclusion of more straightforward co-investment rights. Finally, our findings suggest that, besides the contractual “improvements,” investors want to see more skin in the game from the managers/general partners.",
author = "{Mc Cahery}, J.A. and E.P.M. Vermeulen",
year = "2015",
language = "English",
volume = "3",
pages = "1--27",
journal = "Journal of Financial Perspectives",
issn = "2049-8640",
number = "1",

}

New private equity models : How should the interests of investors and managers be aligned? / Mc Cahery, J.A.; Vermeulen, E.P.M.

In: Journal of Financial Perspectives, Vol. 3, No. 1, 2015, p. 1-27.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - New private equity models

T2 - How should the interests of investors and managers be aligned?

AU - Mc Cahery, J.A.

AU - Vermeulen, E.P.M.

PY - 2015

Y1 - 2015

N2 - The recent global turbulence in the credit markets had a severe impact on all aspects of the private equity industry. In response, lawmakers introduced legislation that subjects fund managers to a registration requirement and provisions targeted at improving fund monitoring and accountability. Yet, little is known about the post-crisis scrutiny of private equity funds by investors. In this article, we examine the post financial crisis trends in the private equity industry. The evidence indicates that investors’ demands for the inclusion of more investor-favorable compensation terms have begun to take hold in European funds. Fund manager responsiveness to the demand for better terms seems more general, extending to increased investor control over fund investment decisions. The new pattern also reveals the inclusion of more straightforward co-investment rights. Finally, our findings suggest that, besides the contractual “improvements,” investors want to see more skin in the game from the managers/general partners.

AB - The recent global turbulence in the credit markets had a severe impact on all aspects of the private equity industry. In response, lawmakers introduced legislation that subjects fund managers to a registration requirement and provisions targeted at improving fund monitoring and accountability. Yet, little is known about the post-crisis scrutiny of private equity funds by investors. In this article, we examine the post financial crisis trends in the private equity industry. The evidence indicates that investors’ demands for the inclusion of more investor-favorable compensation terms have begun to take hold in European funds. Fund manager responsiveness to the demand for better terms seems more general, extending to increased investor control over fund investment decisions. The new pattern also reveals the inclusion of more straightforward co-investment rights. Finally, our findings suggest that, besides the contractual “improvements,” investors want to see more skin in the game from the managers/general partners.

M3 - Article

VL - 3

SP - 1

EP - 27

JO - Journal of Financial Perspectives

JF - Journal of Financial Perspectives

SN - 2049-8640

IS - 1

ER -