1/ Alternative investments are becoming ever more popular.
With more sponsors looking to cash in on the trend, an overwhelming amount of deals have an unattractive alignment of interest and a clear principal-agent problem.
One way to fix this...
With more sponsors looking to cash in on the trend, an overwhelming amount of deals have an unattractive alignment of interest and a clear principal-agent problem.
One way to fix this...
2/ ... is by making agents (GPs) move closer to principals (LPs).
This requires a meaningful amount of #skininthegame (meaningful commitment as a % of the deal).
Forget industry standards like 0 to 3% commitments, which GPs often quote since it favors them (#confirmationbias).
This requires a meaningful amount of #skininthegame (meaningful commitment as a % of the deal).
Forget industry standards like 0 to 3% commitments, which GPs often quote since it favors them (#confirmationbias).
3/ Our job as LPs (HNWIs & FOs) is to look for anomalies and no-brainer opportunities — not 99% of the cookie-cutter deals.
On Twitter, it seems most GPs are in an #echochamber.
They spend all their time discussing what they prefer, without giving a second thought about LPs.
On Twitter, it seems most GPs are in an #echochamber.
They spend all their time discussing what they prefer, without giving a second thought about LPs.
4/ You cannot blame them, I guess. They are operating from a short-termism perspective.
Times are good and raising capital is like taking candy from a baby.
Nevertheless, there is no point in only offering (constructive) criticism without giving examples of solutions.
Times are good and raising capital is like taking candy from a baby.
Nevertheless, there is no point in only offering (constructive) criticism without giving examples of solutions.
5/ As already mentioned, alignments between GPs & LPs work well when GPs become principals, instead of remaining "hungry-fee" agents.
Here are two fantastic private equity funds in Europe, with stellar track records and highly competent management.
Notice the alignment?
Here are two fantastic private equity funds in Europe, with stellar track records and highly competent management.
Notice the alignment?
6/ GPs on the left are committing £10 million (10% of the fund).
GPs on the right are committing a staggering €120 million (17% of the fund).
Industry-standard GP commitments are 1-2% of the fund, while the fees tend to be ridiculously high.
We always pass on those.
GPs on the right are committing a staggering €120 million (17% of the fund).
Industry-standard GP commitments are 1-2% of the fund, while the fees tend to be ridiculously high.
We always pass on those.
7/ With their actions, these rare GPs are clearly stating that which words can never do:
• we believe in the bets the fund is making
• we want to participate in the upside
• if wrong, we also feel the downside
• we give 100% because a LARGE part of our money is on the line
• we believe in the bets the fund is making
• we want to participate in the upside
• if wrong, we also feel the downside
• we give 100% because a LARGE part of our money is on the line
8/ Summary:
When it comes to indirect opportunities, where you are NOT buying individual stocks or doing your own real estate deals,
You're betting on the jockey, as well as the horse.
Ask yourself if there is a clear alignment between the horse owners and the jockey?
When it comes to indirect opportunities, where you are NOT buying individual stocks or doing your own real estate deals,
You're betting on the jockey, as well as the horse.
Ask yourself if there is a clear alignment between the horse owners and the jockey?
• • •
Missing some Tweet in this thread? You can try to
force a refresh
