Negotiations in the current fundraising environment and according to ILPA

Asking about the current environment and the best national and global fundraising and negotiation strategies is a typical prelude to just about any fundraising. Although there are of course exceptions, it is becoming apparent across Europe that only a relatively small number of fund managers will be able to close their new fund exclusively or largely with existing investors. A global analysis of investors who are able and willing to invest is therefore often unavoidable.

Despite the currently very active market, the abstract negotiating power of investors (LPs) and fund managers (GPs) as well as the corresponding influence of an at least perceived shortage of capital on the participation conditions of the fund documentation is also frequently discussed, especially after weak fundraising phases. Particularly against the background of the ILPA guidelines (ILPA=Institutional Limited Partner Association) newly issued this year, the question regularly arises to what extent the negotiation process is now dominated by investors and to what extent the ILPA guidelines are to be regarded as a fixed negotiating template.

Status Quo - Fundraising

Although many GPs are not yet officially fundraising (and the premarketing phase often drags on until First Closing due to the dreaded loss of momentum!), there is a lot of new fundraising activity to report. Fundraising phases are also becoming much shorter again, especially for funds with a very strong track record. For example, the last fundraising (European MidCap Fund) took only a few weeks until the first closing - including negotiations! However, with robust track records, the average is still around 12 to 16 months, largely due to what are now significant capacity constraints for some investors.

Also to be observed - as is often the case in strong markets - are deliberate delays in fundraising due to optimization measures, even when the exclusivity hurdle for establishing a successor fund has been reached.