As banks retreated from the subprime consumer lending space following the 2008 financial collapse, private equity stepped in to provide home, auto, and unsecured loans that can trap low and moderate income people in a…
Investors in private equity and real estate expect that their fortunes and those of investment managers will be shared – i.e. that investment managers will be rewarded when investors see returns and that managers will have material skin in the game should those returns not materialize.
The highly politicized environment in which many institutional limited partners, including pension funds, sovereign wealth funds, university endowments, and foundations operate means they have to be attentive to headline risk created by investment managers or the portfolio companies or assets they invest in.
Since the global financial crisis of 2008, private equity and real estate managers in the US and Europe have faced an expanding regulatory regime. Compliance with Dodd-Frank regulations in the US, the AIFMD in Europe, and other regulatory regimes has become increasingly important for investment managers.
Post crisis, private equity firms aggressively invested in all parts of the US housing market (and increasingly globally as well), buying apartment buildings, single family homes, manufactured housing communities and mortgages. Aiming for double digit…
Investments by private equity managers in for profit colleges companies helped fuel the late 2000s boom in for profit education which in many cases saddled young people with debt without preparing them for jobs.
Private equity managers have invested in companies and projects that have a lasting impact on the environment. For example, with the recent fall in oil prices, private equity managers have invested heavily in US fossil…
Because limited partners generally commit to a private equity or real estate fund for 10+ years, they need to be sure that the team that has historically generated returns at an investment manager sticks around. Turnover of key executives can quickly erode the team that limited partners signed up with.
Focused on growing cash flows at the companies they buy, private equity firms have in some cases taken a low road approach and sought to reduce wages, benefits, and staffing at firms they acquire.
As the number of private equity and real estate funds in market and total capital sought begins to approach pre-crisis, investors know that not all fund managers are created equal in terms of performance.
In recent years, limited partners have come to pay closer attention to manager fees that can significantly impact the returns that investors ultimately see. In addition, investors and regulators have begun to pay greater attention to not just the posted management fees and carried interest, but also to deal fees and affiliate fees charged to funds that limited partners ultimately bear.