It also picked up UniSuper as a client, although that relationship has recently become more a matter of monitoring existing managers than sourcing new ones. The chief investment officer of the $25 billion industry fund, John Pearce, confirmed last month he was sticking by his decision to make no new private equity investments for the time being, in preference for the “better opportunities” in property and infrastructure. UniSuper has even sold some of its large number of private equity closed-end fund interests on the secondary market, crystallising losses in some cases. Pearce acknowledges that institutional investors were now driving fairer splits on work fees, but says that is a moot point for UniSuper given its withdrawal from new investment. A far bigger problem is that the fund continues to pay a full active fee on the undrawn capital in many of its private equity investments.

“The managers justify that by saying they’ve got fixed costs and what have you, but if you ask me, if they need to charge that to survive then they are in the wrong business,” Pearce says. The chief investment officer also has no time for that other great justification of charging active fees on uncommitted capital – that it prevents managers from recklessly pursuing any deal that comes their way. “The managers all have a lot of their own money tied up in their funds, so the incentive not to do deals for the sake of a higher fee is already there.” Pearce is not alone in his reservations towards private equity. The ‘barbarians’ of a few years ago have experienced lacklustre responses to their recent approaches to investors. Altius’ Young observes that Blackstone, for instance, just closed a fund “having raised a lot less than they have in the past”, while a Madison Dearborn offering was also undersubscribed. Where the consultant is seeing demand outstrip supply is at the smaller end of the market, where managers are seeking $4-500 million to deploy much-needed capital to middle-tier businesses.

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