The private-equity business learns to be more flexible

THE private-equity business presents a paradox. Its barons like to boast of revamping the companies they buy. But they themselves have been steadfast to their own business model, centred on funds with a ten-year life. Within this time span, fund managers, known as “general partners” (GPs), commit to buy, manage and sell a clutch of companies; investors commit to lock up their money for the duration. Sometimes GPs or investors chafe at the time constraint. A new segment of the secondary market, “GP-led” deals, has sprung up to help them.

Investors wanting to exit a fund early need to find a buyer for their stake in the secondary market. But sometimes none will offer an attractive price. Sometimes also, a fund nearing its expiry date may find itself still holding a large number of its investments. GP-led deals place the onus on fund managers to find buyers.

Such transactions have quickly grown from just 10% of the secondary market in 2012 to over one-third this year, according…Continue reading

from Business and finance http://www.economist.com/news/finance-and-economics/21725778-financiers-used-changing-others-business-models-tinker-their-own?fsrc=rss

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