Some influential investors have made clear demands to the world’s largest private equity firms if they want to raise money for their next fund. Sovereign wealth funds and state pension providers are among the investors telling money managers that they will only commit to their upcoming fund raises if their capital tied up in old funds is released. Additional requests from investors include fee discounts, more co-investment opportunities, greater information rights and representation on committees, and some are even asking for a cut of the fund’s management fee or an opportunity to buy a stake in the fund manager. This cultural change in the relationship between private equity firms and their investors is empowering the investors to dictate the terms of engagement in the $8 trillion private equity industry. As the heft of some funds has become more persuasive, large limited partners, such as sovereign wealth funds from the UAE, Saudi Arabia, and Qatar, are instigating more influential requests, including requests for more disclosures about the underlying assets in portfolios. LPs are using the leverage they have, particularly the largest investors of private credit, such as the sovereign wealth funds, and state pension plan funds, to dictate the terms on which they will commit to new fund raises. There is growing scrutiny and demands by these investors over private market firms, including those in the $1.6 trillion private credit market. Consequently, some funds are increasingly lending directly to borrowers and cutting out direct lending giants altogether. Furthermore, private equity’s increased use of leverage can sometimes come at a cost for other LPs in the fund who haven’t opted for the fund to add leverage. As a result, the balance of power is shifting, granting LPs the ability to demand more control over the terms on which they will commit to new fund raises.
