Interview with Eric Byrne, UBS

What changes have you seen in the actual interaction between GPs and LPs, particularly in agreeing terms?

Has there been more pushback from LPs? There was a rebalancing between the GP and the LP that occurred after the financial crisis in 2008/2009. So pre-financial crisis, the GP was in the ascendancy and sort of set the terms and the LP could either take these terms or choose not to. That then evolved quite a bit, from really 2010 onwards to a position pre-Covid where I would say there was the right balance between the GP and LP with regard to fund terms and transparency in the majority of cases. Covid hasn’t really changed that, but GPs have become very attuned to transparency requirements during Covid, particularly if you’re invested in assets that have been under stress.

What trends are you seeing in GPs’ fee structures and what LPs are willing to accept?

It’s a case of supply and demand. Some large or unique funds can hold their fee levels, while in areas of strong competition fees are falling.

If there’s a fund that is quite unique and it’s investing, for example in life sciences, where everyone wants to get into, then people are willing to pay the fees because they can’t find another alternative to get into life sciences. But if there are ten other life sciences funds that are offering the same thing and lower fees, then of course you’ve got that extra optionality and ability to negotiate a lower fee.

How do you view the difficulties experienced with valuations?

When Covid hit no one really knew what retail, hotel or even office assets were worth, because there simply were very few transactions occurring to find a fair value. The Royal Institute of Chartered Surveyors quite rightly recommended at the time to put a material uncertainty clause in place, however this was inconsistently applied around the globe by the valuers and managers with some funds suspending trading while others did not. As the impact of Covid has become better understood and transaction volumes have picked up, the material uncertainty clause has been lifted in almost all cases now.

How attractive is the secondary market right now?

We’ve seen over the last 15 years, there’s been different points in the cycle which have created better opportunities for secondaries. And of course, the best opportunity was post the last financial crisis really. The secondary vintages around 2011 to 2013 were very good as there were a significant amount of distressed sellers willing to sell at quite a significant discount.

The secondary market has now evolved where there is more tactical LP led secondary transactions at less distressed prices. The growth area we have seen is in GP-led recapitalisations which is playing a much larger part in the secondaries space today.