A survey of chief financial officers at private equity firms showed that the general partner’s commitment to a new fund is smaller than that from the previous fund on average, but this doesn’t necessarily mean that GPs are committing less money.

In the 2018 pfm Fees and Expenses Benchmarking Survey, the average size of a GP’s previous fund commitment was 4.85 percent of the total fund, compared to 3.06 percent for the subsequent fund. The size of the funds is what affects these numbers, said George Arnold, managing principal at Knightsbridge Advisers, a fund of funds firm that mostly deals with venture capital and some private equity.

“You need to look at a lot of factors,” he told pfm. “If the fund size stays the same or if the fund size goes up that can have an impact. On an absolute basis, their GP commitment can still increase, but on a relative basis it can decrease because of a larger fund size.”

For example, if a GP commits $4.85 million to its $100 million fund for the first time, that brings its participation to 4.85 percent. But if the size of the next fund rises to $158.5 million and the GP keeps its commitment at $4.85 million, then its participation drops to 3.06 percent.

Another factor is the number of investors and their capital. The GP’s next fund can have more investors and a higher amount of capital committed by them. This indicates that a GP’s commitment will take up a smaller percentage of the fund, even if they are investing the same amount or more compared to their previous fund.

CFOs are also paying attention to the composition of those GP commitments. In October, pfm reported on a survey by the research and law firm MJ Hudson in which private equity firms committed more to their own funds in 2018 than they did in 2017. Investors preferred a GP commit directly into the fund through cash rather than through management fee waivers. The more cash a GP has committed to a fund, the more investors feel like they will be invested in the fund doing well.

In the pfm survey, 65 percent of CFOs said they finance the GP commitment entirely in cash and 35 percent said they finance through a combination of cash and fee waivers.