A new study commissioned by Intertrust has revealed that US private equity investors remain to be convinced that long-life funds will become an alternative to the traditional ten year fund vehicle. Only one in four (26%) of those questioned predict they will become more popular in the next five years.
The biggest challenge facing long-life funds is the level of management fees, with three-quarters of respondents (76%) believing they will need to fall to attract more interest. The majority (56%) need to see long-life funds demonstrating success before considering them. Other changes that long life funds should adopt to become more popular include lower carried interest (32%) and higher hurdle rates.
Paul Lawrence, global head of Fund Services at Intertrust, said: "Long-life funds have some way to go before they can compete with the conventional fund structure and our research suggests that fees are the biggest obstacle. But as many general partners struggle to deploy capital in a timely fashion due to a highly competitive market, long-life funds may become increasingly popular. Their ability to invest in specific sectors delivering longer-term investment horizons such as infrastructure, renewables and energy will also enhance their appeal."
Intertrust's study also gauged sentiment of US private equity investors towards several potential changes that could come into force following President Trump's proposed deregulation of the big banks. Nearly half (48%) expect to see a repeal of the Volcker Rule, which prohibits banks from investing in private equity, venture capital and hedge funds. 23% anticipate a repeal of Title IV of the Dodd-Frank Act, which mandated that private equity advisers register with the Securities and Exchange Commission.
Dennis van den Broek, director and head of Alternative Investment Funds for Intertrust US, added: "It remains to be seen whether the Trump administration follows through on its proposals to deregulate the banks. Any changes would need to be approved by both the House of Representatives and the Senate and that has proved difficult for Trump so far. While many in the private equity industry support the move towards deregulation, the fact that only half of respondents expect to see the Volcker Rule repealed underlines a widespread level of doubt that this will happen."
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