PREQIN SPECIAL REPORT: PRIVATE CAPITAL FUND TERMS OCTOBER 2017 alternative assets. intelligent data. PREQIN SPECIAL REPORT: PRIVATE CAPITAL FUND TERMS KEY FACTS PREQIN HAS THE MOST COMPREHENSIVE DATASET THE 2/20 FEE MODEL OF PRIVATE CAPITAL FUND TERMS 7,500+ 44% Number of private capital funds with actual fund terms and of recent direct conditions data recorded by Preqin. private capital funds charge a management fee of 3,300+ 2.00%. Number of anonymous fund listings with actual terms and conditions data. 82% of recent direct 1,700+ private capital funds Number of named funds in the 2017 Preqin Private Capital Fund have a carried interest Terms Advisor. rate of 20%. ALIGNMENT OF INTERESTS AND THE POWER OF THE LP Management fees 63% should cover costs of investors surveyed in December 2016 believe that GP and LP only with no profit. interests are properly aligned. Performance should be based on properly calculated alpha generated 91% - North America-based family office, of LPs have decided against investing in a fund due to the proposed H1 2017 terms and conditions. p3 Foreword p4 Data Sources p5 LP Attitudes towards Fund Terms p7 Management Fees p9 Performance Fees p11 Governance p12 Fund Formation and Costs p13 Fund Terms Online p14 Net Cost Listings All rights reserved. The entire contents of Preqin Special Report: Private Capital Fund Terms, October 2017 are the Copyright of Preqin Ltd. No part of this publication or any information contained in it may be copied, transmitted by any electronic means, or stored in any electronic or other data storage medium, or printed or published in any document, report or publication, without the express prior written approval of Preqin Ltd. The information presented in Preqin Special Report: Private Capital Fund Terms, October 2017 is for information purposes only and does not constitute and should not be construed as a solicitation or other offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or as advice of any nature whatsoever. If the reader seeks advice rather than information then he should seek an independent financial advisor and hereby agrees that he will not hold Preqin Ltd. responsible in law or equity for any decisions of whatever nature the reader makes or refrains from making following its use of Preqin Special Report: Private Capital Fund Terms, October 2017. While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to confirm the accuracy of such information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Preqin Special Report: Private Capital Fund Terms, October 2017 are accurate, reliable, up-to-date or complete. Although every reasonable effort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or omissions within Preqin Special Report: Private Capital Fund Terms, October 2017 or for any expense or other loss alleged to have arisen in any way with a reader’s use of this publication. 2 © Preqin Ltd. 2017 / www.preqin.com DOWNLOAD DATA PACK: www.preqin.com/PCFT17 FOREWORD or GPs, finding the right balance and adopting the most appropriate fund terms and conditions is no easy task. It is well known Fthat the opaque and confidential nature of private capital investment means that fees are rarely disclosed outside the fund, and as such, it is difficult to benchmark against other GPs and competitors throughout the industry. Nevertheless, 2016 saw greater movement towards improvements in transparency throughout the private capital industry, particularly as high-profile cases regarding how fees were charged to investors were brought forward by the SEC. Furthermore, new legislation in California requires the additional disclosure of fees from alternative managers to public bodies. Some firms in the industry have also become more innovative in the competitive fundraising environment and have offered bespoke fund structures to provide a more unique approach to fund terms and conditions, while simultaneously aligning their interests with those of their investors. The data and analysis contained in this report draws upon the 2017 Preqin Private Capital Fund Terms Advisor. The full-length 318- page book offers the most comprehensive data and intelligence on fund terms and conditions in the industry and aims to reveal the latest trends and current market sentiment that surrounds this opaque area. The eleventh edition in the series, the full-length Fund Terms Advisor uses fund terms for over 7,500 private capital funds and compiles data from our current databases, historical datasets and LP and GP surveys to provide comprehensive and accurate insight into the private capital fund terms universe. Uses include: ■ Individual fund listings, on an anonymous basis, for more than 3,300 funds of different private capital strategies, vintages, geographies and sizes; ■ A complimentary 12-month subscription to our online service, to calculate your own benchmarks for fund terms and conditions by strategy, geographic focus, fund size and minimum LP commitment; ■ Listings of nearly 1,700 named funds showing the net costs incurred by investors annually (obtained through Freedom of Information requests to public pension funds in the US and UK); ■ Coverage of fund managers offering separate accounts and co-investment rights; ■ Listings of law firms active in fund formation, including sample assignments; ■ Plus much more. We hope that you find this report informative and valuable. For more information, or to order your copy of the full Fund Terms Advisor publication, please visit www.preqin.com/fta. To find out how Preqin’s services can help your business in 2017 and beyond, please do not hesitate to contact us at [email protected] or at our New York, London, Singapore, San Francisco or Hong Kong offices. 3 alternative assets. intelligent data. PREQIN SPECIAL REPORT: PRIVATE CAPITAL FUND TERMS DATA SOURCES he 2017 Preqin Private Capital Fund This detailed information was provided to 3. FUND PERFORMANCE BENCHMARKS TTerms Advisor incorporates all data us in confidence, on the understanding Preqin’s Private Equity Online has the concerning private capital, which includes that it would be used for the purposes of largest sample of private equity (including private equity, private debt, private establishing benchmarks and trends, but real estate and infrastructure) fund equity real estate, unlisted infrastructure that the individual details of each fund’s performance data available anywhere and natural resources. The book delivers terms would not be disclosed on a named (currently over 8,700 funds), and is the same high-quality information and basis, and neither would the identity of unique in that this data is available on a intelligence across the private equity the funds taking part in the data collection completely transparent basis: details can industry and beyond. The 2017 Private process. We are very grateful to the many be seen for each individual named fund Capital Fund Terms Advisor draws upon GPs and placement agents that have on the database. We have used Private three main sources of data: shared information with us in this way. Equity Online to model the typical investment and divestment progress of 1. FUND TERMS DOCUMENTATION 2. FREEDOM OF INFORMATION ACT each fund type over its lifetime, and have Preqin has access to fund terms (FOIA) INFORMATION ON FEES AND therefore modelled the economic impact documentation for over 7,500 separate COSTS of different sets of terms. private capital funds of all types, sizes and Freedom of Information Act (FOIA) geographic foci. Anonymous listings are information has been used to provide available for more than 3,300 funds on our the net effect of the partnership terms Fund Terms Online module in the actual fees and costs incurred by (www.preqin.com/fta). Furthermore, the LP. In other words, instead of giving accredited investors signed-up to our a complex set of rules for how fees are to complimentary Preqin Investor Network be calculated, and the way in which other (PIN) service can access fund terms costs are to be credited against fees, the benchmarks and fund-specific fund terms FOIA data gives a simple financial statistic: data supplied directly by fund managers the total net fees incurred over the period. and placement agents. THE 2017 PREQIN PRIVATE CAPITAL FUND TERMS ADVISOR The 2017 Preqin Private Capital Fund Terms Advisor is the ultimate guide to private capital fund terms and conditions, drawing upon extensive research and containing analysis, benchmarks, listings of funds and their terms (on an anonymous basis), investor opinions and more. THE 2017 PREQIN PRIVATE CAPITAL FUND TERMS This year’s edition of the Fund Terms Advisor draws upon analysis of fund terms and ADVISOR conditions data for over 7,500 funds, more than ever before, including private equity, venture capital, real estate, infrastructure, private debt and natural resources funds. alternative assets. intelligent data. The 2017 publication is accompanied by a complimentary 12-month subscription to our online service, which you can use to calculate your own benchmarks for fund terms and conditions by strategy, geographic focus, fund size and by minimum LP commitment. For more information, to download sample pages or to order your copy, please visit: www.preqin.com/fta 4 © Preqin Ltd. 2017 / www.preqin.com DOWNLOAD DATA PACK: www.preqin.com/PCFT17 LP ATTITUDES TOWARDS FUND TERMS ALIGNMENT OF INTERESTS Fig. 1: Extent to Which LPs Believe that GP and LP Interests Are Properly Aligned, The alignment of interests between GPs 2013 - 2016 and LPs is an important aspect of their 100% 4% 4% 6% relationship, and is intrinsically related to 10% 90% fund terms and conditions. According to Preqin’s LP survey conducted in December 80% Strongly Agree 2016 across the private capital universe, 70% a significant 63% of investors believe that 63% 59% 57% 60% 60% Agree GP and LP interests are properly aligned.