Private equity teams face reshuffle ahead of fundraising
Senior teams at some private equity firms have become increasingly unstable as prospects for remuneration from current funds becomes ever more remote.
Already this year a number of private equity partnerships have dissolved after the departure of key personnel. The departures come as many firms are looking to go fundraising for the next investment cycle. Getting teams together in advance therefore becomes a key factor in persuading investors to increase current investments or make new commitments.
For private equity firms, the possible departure of key personnel can cause a breach in the Limited Partnership Agreement, which governs the management of the fund, the payment of fees, carried interest, hurdle rates and other terms of the partnership.
However, says Armando D’Amico at Acanthus, a private equity fund placement adviser, “key man clauses are often legally fragile, or in some cases entirely unenforceable, leading to investor impotence and discontent.”
Conversely, some contracts give too much weight to key personnel, he says, “allowing certain professionals in effect to hold firms to ransom on major decisions”.
In this situation, he says, “team changes can be a good thing, especially when they are the result of pro-active management to achieve optimal team-wide motivation. For example, if certain senior team members have earned substantial carry from previous funds and may not have the desire to begin another ten-year cycle.”