Perpetual Fundraising in Private Equity

EisnerAmper has, for several years, led the way in disseminating intellectual property regarding private equity. Through our Pulse of Private Equity research reports, we’ve delivered the state of the industry from the insiders’ views.

As we continue to address the industry’s concerns, we recently held an event titled Private Equity Fundraising Results: Perspectives on Success. This report is designed to highlight key discussion points and survey results from the audience.

As the demands from Limited Partners (LPs) grow, the need for private equity funds to provide greater transparency is ever-increasing.

In order for General Partners (GPs) to keep up with these demands, they are looking to increase the use of efficient tools and systems, while maintaining and sustaining both their internal resources and utilizing third parties to deal with the ever-growing compliance requirements facing the private equity world.

Perpetual fundraising is a constant requirement facing GPs, as they need to plan for the process of fundraising for the next fund shortly after the launch of the current fund. With the majority of funds claiming performance in the top quartile, Augustine (Gus) Long, a Partner at Stanwich Advisors, noted “Track records and attributions should match up with references.” There are additional pressures placed on funds by LPs, with track records and past performances on their own not being attractive enough to lure the LPs to invest. LPs are being more proactive with their own due diligence of the GPs and are having greater influence over the outputs that GPs provide. GPs are adhering to the mantra ‘Respect your investors.’

In the venture capital space, GPs are starting to provide some relief to investors through the implementation of the LP-friendly ‘European-style’ waterfall calculations, which are now almost an industry norm and are expected from LPs. This provides that the GP does not receive any carried interest until the LPs have first received back cumulative distributions equal to the aggregate amount of their capital contributions, plus a preferred return on these contributions.

Private Equity - Limited Partner

Private Equity - launch successful fundsGiven the extensive due diligence being performed by LPs, Chris Hastings, a Principal with BerchWood Capital, noted that “We advise even the most successful GPs that fundraising in 2013 is much more time-consuming than it was 5 years ago.” In the current fundraising environment, the ‘typical’ time frame for an established fund sponsor to launch a successor fund is now 12-18 months, and in some instances longer, which is consistent with the polled audience survey.





 Private Equity - top 3 capital


As compared to the latest Pulse of Private Equity publication issued in January 2013, the anticipated sources of capital from those polled in that publication’s survey were consistent with the actual sources of capital for the audience surveyed at this latest event. Above are those results from the recent polled audience survey.



Private Equity - ILPA

One way in which the influence of LPs is being seen and heard across the industry is through the Institutional Limited Partners Association (ILPA) and their issuance of the ILPA Private Equity Principles in 2009 and 2011.  ILPA is a global, member-driven organization devoted to advancing the interests of LPs through research, networking, webcasts, and live events. ILPA is currently comprised of 250 member organizations which represent over $1 trillion of private assets.

ILPA developed the Private Equity Principles in order to establish a best practices guide regarding fund relationships between GPs and LPs. ILPA identifies Alignment of Interest, Governance, and Transparency as the three guiding principles which form an effective private equity partnership. Under these three principles, various partner interests and concerns are addressed in a “best practice” manner as these principles are not laws or industry standards. Jay Hass (Partner, RRE Ventures) expects to hear more from LPs regarding ILPA’s best practice guidance as more and more people become aware.




Private Equity - Impact

The increased influence of LPs has led to greater transparency from the funds and greater independent due diligence procedures performed by LPs. GPs are utilizing added tools in order to provide clarity to their investors as well as comply with the increased demands within the regulatory environment. LPs are increasingly inquiring about funds’ third-party service providers, and in some instances meeting with these service providers and conducting their own reviews to gain a greater understanding of the controls in place. LPs are becoming more aware of management fees and the calculation behind these fees, pushing the evolution of the view that management fees should be used to cover operating expenses and not be considered a revenue source for the fund managers. LPs are requesting to see these calculations, and gain greater understanding of the components including management fee offsets.

“LPs will not invest in a fund just for having the best systems, but they will certainly not invest in a fund if there are not adequate systems in place”

Augustine (Gus) Long

Stanwich Advisors

Private Equity - Outsource Services

More recently, funds have been more reliant on third-party providers utilizing specialized software to quickly produce ad-hoc reports and other investor information outside of the quarterly investor statements. These increased compliance requirements have led GPs to have service providers collectively involved with many fund developments. From the results of the audience survey, 75% of those polled said that LPs have shown a greater interest in learning about third-party providers.


“Fund managers that are fundraising are finding LPs asking more questions about portfolio composition and performance at granular levels. Sometimes they don’t care as much about the answer as about the ability of the GP to get a complete, accurate and timely answer. For this and for ongoing operational diligence, GPs are increasingly adopting software to be able to demonstrate back office capability during fundraising.”

Mason Power
Chief Marketing Officer



The Foreign Account Tax Compliance Act (FATCA), as part of the Hiring Incentives to Restore Employment Act enacted by congress in 2010, is designed to prevent U.S. taxpayers from avoiding U.S. tax on their income by investing through foreign financial institutions and offshore funds.

 Private Equity - FATCA


FATCA directly impacts the private equity world as a whole, both at the fund level and investor level. Generally foreign financial institutions, which include foreign private equity funds, will need to become FATCA compliant. This requires complex entity analysis, registration with the IRS or compliance with an Intergovernmental Agreement,adopting investor due diligence processes, and additional reporting. Domestic private equity funds will also need to ensure that their foreign investors are FATCA compliant. Failure to properly address FATCA may result in additional 30% withholding taxes on a broad amount of U.S. income. A capable and equipped FATCA team is critical to achieving maximum compliance efficiencies and reducing risk.

This report was co-authored by Bonnie Yeung, Thomas Murdoch and Jocelyn Gaffington.

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