The favourable fundraising environment masks the concessions general partners without clout are having to make when negotiating with investors, according to European placement agent Acanthus.

Fundraising soared to pre-crisis levels last year, with totals bolstered by a number of mega-raises. Among these were the $24.7 billion Apollo Investment Fund IX, the €15.5 billion CVC Capital Partners VII and the $15 billion Silver Lake Partners V.

While raising capital for blue-chip firms may seem easier than it has been for a decade, the headline figures may not represent the struggle faced by GPs that don’t have capacity for substantial commitments, Wilf Wilkinson, managing partner at Acanthus and a PEI Rainmaker, told Private Equity International. Likewise, strong investment performance accross the board in recent years has made it harder for firms to rely solely on track record to stand out from the crowd.

Wilf Wilkinson

“Some GPs have gone to fundraising feeling they’ve done a very good job with their portfolios and been surprised that actually the performance which they’re able to show in itself is not really enough, because great performance is not so scarce any more at this particular point in time for those vintages,” Wilkinson said.

“They found themselves on the back foot and have needed to do things like give away co-investment rights and agreeing to give co-investment for free or agreeing fee discounts for first closes. Ultimately people publicise great fundraisings and talk about, … in non-specific terms, the fantastic terms which they achieve, but very few people talk about the pain and the skin they’ve had to give away.”

In November, a London-based private equity firm told PEI that two-and-20 fee terms were no longer guaranteed, as difficulties in deploying capital and a plethora of vehicles to choose from had given some LPs greater flexibility when agreeing fund terms.

Management fees have been steadily decreasing and are now hovering around the 1.5 percent mark, particularly for newer vintages. Carry is also gradually dropping below the 20 percent mark for newer vehicles, with hurdle rates generally holding up at around 8 percent, but with notable downwards pressure.

Some LPs are using side letters to negotiate preferential co-investment deal rights and fee levels. The management fee being paid by LPs for co-investments ranges from zero to around 1 percent, lower than the customary 2 percent, according to a 2017 report from law firm MJ Hudson.

“There’s always capital available for genuinely outstanding propositions and they’re always able to, within reason, dictate the terms that they demand from they’re LPs,” Wilkinson noted.

“We’re just in a time in the market where the number of outstanding fundraises is greater, because the market is generally busier and bigger. But as with any period in the fundraising cycle you have decent teams that struggle and have to give things away to LPs.”