Two-thirds of LPs lack a process to review fund extensions

About two thirds of limited partners don't have a formal process to review and respond to requests for end of life fund extensions, according to a survey conducted by Credit Suisse Private Fund Group, Debevoise & Plimpton and financial consulting firm Conway MacKenzie. 
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Of the LPs surveyed, the majority believe more than 5 percent of their private equity portfolio will consist of tail-end funds in the next three years. 
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However, LPs' attitudes toward solutions to tail-end fund situations vary. The majority of investors approve would consider restructuring of economic terms and the sale of their interest in the fund. 
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“I was encouraged by LP sentiment around whether they would consider a restructuring of economic terms or an LP interest sale as it highlights an openness to developing solutions that address these potential issue,” said Mike Custar, a managing director in the Credit Suisse Private Fund Group. 
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Some LPs are less likely to approve or participate in new unfunded commitments to bridge funds, which have a shorter than normal investment period. They also have mixed feelings about the replacement of an existing GP. 
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Still, when it comes to deciding the appropriate course of action to resolve tail-end fund situations, LPs believe an agreement won't be reached for at least half of the situations. 
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Significant issues noted by LPs include perceived GP misalignment of interest, difficulty in achieving consensus and a lack of enhanced understanding of LP rights and obligations under the limited partner agreement and applicable law.