Buyout firms face squeeze as investors go direct for deals

Fri Mar 22, 2013 9:20am EDT
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* Pension funds, insurers battle for deals on their own

* Private equity fees, desire for more control spur change

* Buyout firms say adapting to trend with co-investments

By Tommy Wilkes and Anjuli Davies

LONDON, March 22 (Reuters) - Tired of the hefty fees charged by private equity firms and wanting more say over what they buy, big investors like pension funds and insurers are taking matters into their own hands.

Some are buying stakes in companies directly or teaming up to invest alongside private equity firms rather than locking money away in those firms' funds.

That is posing a challenge to the $3 trillion private equity industry, where companies like KKR and Apax spearheaded the model of raising money from investors to put to work on their behalf in exchange for management and performance fees.

For the first time in their history, buyout firms are raising less money from investors, and there are signs that trend could continue.

According to industry tracker Preqin, 43 percent of investors in a survey this year said they planned to increase the money they put into co-investments, in which investors do deals alongside buyout firms but pay no fees.   Continued...