About private equity

How private equity invests in privately-owned businesses, supports jobs and creates prosperity.


Login to access your exclusive member-only content and account information.


Not a member? Join us

  • Operate to the highest level of professional standards
  • Access authoritative industry research and data
  • Navigate the complex EU regulatory environment
  • Network and engage with industry leaders
News & opinion

How LPs are driving positive change

07 Feb 2018

Demand for private equity is at a high. Fundraising in Europe last year reached almost €74 billion – the highest level since 2008 – according to Invest Europe data, as investors flock to one of the remaining sources of returns in today’s low-yield environment. But does this level of investor appetite compromise LPs’ negotiating power?

Some LPs would say yes. According to a recent institutional investor sentiment study by Preqin, a growing number – now over a third – believe LP/GP interests are not aligned. This indicates an opinion that it is harder for LPs to drive change within the GP community, though four in 10 investors surveyed acknowledged the progress that has been made by GPs in areas such as management fees and transparency.

These kinds of fund terms have traditionally been the major battleground for LPs with GPs. However, today it is also environmental, social and governance factors where their voices have started to be heard. In recent years, ESG has grown from a niche topic for specialists into a mainstream consideration that is – or should be – part of the very fabric of how GPs go about their business and raise and invest funds. Large institutional investors – pension funds, insurance companies and other asset managers – have been at the forefront of this change, calling for GPs to focus more closely on responsible investment.

This is best done through dialogue. Making progress on ESG in a negotiation is not simply about going through a checklist, requesting side-letter commitments and considering the matter addressed. To effect real change and monitor their investments, many LPs nowadays engage directly with GPs on this topic, most notably in the diligence process, but also during the life of the fund. GPs value constructive feedback about the ESG performance LPs observe in this process. 

For a GP to develop ESG frameworks that will apply across the firm and to all investments they manage, it takes effort if it is to be meaningful and requires time for it to have an impact. It can also represent a challenge for the mid-market and small-cap managers, where resources may be more limited. However, as the importance of good ESG management grows, GPs are becoming more open to change. There is momentum in the market towards wholesale ESG integration in investments and operations. Many private equity firms are now seeing a calibrated responsible investment approach as truly beneficial to their investments, both in terms of risk management and value creation within portfolios.

While individual LP engagement will always be necessary so interests can be aligned on ESG expectations, industry associations will also continue to be valuable forums for dialogue – such as Invest Europe’s platform councils, responsible investment roundtable and the professional standards committee – where LPs and GPs have the opportunity to share best practice and work on developing much-needed industry guidance.

Of course, the clearest signal an LP can send about the importance of RI matters is their choice of where to invest. While some fund terms and conditions may fluctuate with market cycles, ESG requirements are likely to remain a constant for LPs. It is therefore vital that LPs engage more broadly with peer groups, come together to define best RI practice, and be vocal with GPs about the policies and practices that are required. Then – even in a market where GPs are flush with capital – private equity will continue to listen and evolve.

First published in Private Equity International.

Marta Jankovic, Chair for 2017-2018, Invest Europe

Want to discuss?

We are always keen to hear from you.


What can I do to manage cookies stored on my computer or phone?

You can accept or refuse cookies. Accepting cookies is usually the best way to make sure you get the best from a website.

Most PCs automatically accept them but you can change your browser settings to restrict, block or delete cookies if you want. Each browser is different, so check the 'Help' menu of your particular browser (or your mobile phone's handset manual) to learn how to change your cookie preferences. Many browsers have universal privacy settings for you to choose from.

Help on how to set and customise your cookie settings for your browser

How to manage cookies in Internet Explorer

Cookie settings in most versions of Internet Explorer can be found by clicking the tools option and then the privacy tab.

How to manage cookies in Firefox

Cookie settings in Firefox are managed in the Options window's Privacy panel. See Options window - Privacy Panel for information on these settings.

How to manage cookies in Chrome

Click on the spanner icon on the toolbar, select settings, click the under the bonnet tab, click on content settings in the privacy section.

How to manage cookies in Opera 

You can manage cookies in Opera if you Click on settings, then Preferences, then Advanced and finally Cookies

How to manage cookies in Safari

Choose Safari, then preferences and then click security. You should then be able to specify if and when Safari should accept cookies.

To manage cookies on your mobile phone please consult your manual or handbook.

Get more help about how cookies work with specific browsers.

What happens if I don't accept cookies?

If you decline cookies, some aspects of Invest Europe site may not work on your computer or mobile phone and you may not be able to access areas you want on the website. For this reason we recommend that you accept cookies.

What happens if I delete my cookies?

If you delete all your cookies you will have to update your preferences with us again and some aspects of our site may not work.

What happens if I change computers or mobile?

If you use a different device, computer profile or browser you will have to tell us your preferences again.

If you'd like to learn more about cookies in general and how to manage them, visit aboutcookies.org.

We can't be responsible for the content of external websites.

Opt-out of cookies


Join today

This is for members only. To view in full login or join Invest Europe today.