LP-GP relationship is the core of limited partnership. The high-quality relationship between GP and LP provides a long-term and stable source of funds for GP, enabling GP to focus on project investment and management. Due to the asymmetric information between LP and GP, the handling of the relationship between LP and GP has become a huge burden for many funds. The core factors affecting LP-GP relationship include:

First, in the setting of fund terms, the key terms such as management fee structure and fund income distribution design are the key factors to promote GP's enthusiasm and ensure the consistency of LP and GP's interests. As a professional investor focusing on the private equity industry, FOF's long-term investment experience is beneficial for FOF to play an active role in the negotiation of key terms and balance the interests between GP and LP.

Second, GP needs to establish a transparent and timely communication system in the operation process, and disclose the fund operation information to LP in time. On the one hand, excellent FOF has its own mature LP communication mechanism; On the other hand, because it has invested in many excellent sub-funds, it can learn from the best practices of the industry, establish a communication system of sub-funds and provide effective suggestions.

Third, the professionalism of LP; Due to the long-term and illiquidity of the private equity industry, external factors such as short-term macroeconomic fluctuations will adversely affect the book rate of return of the fund in a short time. Due to the professionalism of FOF, it can objectively evaluate adverse changes and give GP full understanding and support.

FOF can provide strong value-added services for sub-funds in the above aspects, and at the same time play the dual roles of GP (relative to FOF investors) and LP (relative to sub-funds), and have a more comprehensive understanding of LP-GP relationship, laying a good foundation for the benign interaction between sub-funds LP-GP.

raise funds

In fund raising, FOF, as LP, has played a significant value-added effect for sub-funds, mainly in three aspects:

First of all, FOF is a long-term and stable source of funds. For the sub-fund, it is more willing to choose LP that can inject capital for a long time in the follow-up fund and establish a long-term cooperative relationship. As an LP focusing on the private equity market, FOF can usually inject capital into the sub-fund team with outstanding performance for a long time, regardless of the asset allocation ratio in the private equity market.

Second, FOF can establish a more optimized LP structure for sub-funds and ensure long-term stable funding channels. Different regions and types of LPs will adjust their asset allocation in PE market according to the changes of market and policy environment, so too single LP composition is a potential hidden danger to the stability of fund sources. The LP composition optimized by FOF itself can diversify the LP composition of sub-funds.

Third, the addition of FOF can usually shorten the fundraising cycle of sub-funds. As a professional investor, FOF has strong professionalism in due diligence, fund terms negotiation and long-term tracking of GP performance. Therefore, it is a positive signal that the potential LP of the fund joins in the initial stage of fund raising, or serves as the lead investor of the fund, which is of positive significance for promoting the success of fund raising and shortening the fund raising cycle.

investment strategy

As LP, FOF occupies a seat in the sub-fund investment advisory committee, and its positive effect on the sub-fund investment strategy is reflected in two aspects: at the macro level, FOF provides professional advice for the sub-fund investment strategy direction in the investment advisory committee; At the micro level, it provides industry contacts and resources for sub-fund project sources and invested companies.

In a word, as an important investor in the private equity industry, FOF represents a professional and high-quality source of funds, which can provide more value-added services for sub-funds outside the fund and give full play to its advantages as an LP.