EDITOR'S LETTER: Pendulum of power

Pendulums are an interesting thing. The idea is that, at equilibrium, gravity dictates there is a perfect balance between left and right. However, if some exterior force is applied, it swings more to one side.

That is not a bad analogy for the ‘power struggle’ between GPs and LPs, and that is why it is so frequently used. However, as the private equity real estate industry is not in fact a pendulum, it is impossible to say with any degree of certainly where it is at any given moment, which is why we occasionally need to ask.

A recent poll on perenews.com asked readers whether, five years on from the global financial crisis, that pendulum of power is swinging once again in favor of managers rather than investors. Well, the response may well indicate we are close to equilibrium: there was quite an even split between those who said it was in favor of managers and those who said LPs. Then again, that could mean everyone is experiencing different things when it comes to terms!

The relevance is that, as we start 2014, this is the central tenet of most conversations. It does seem to be the case that many factors are pushing investors towards real estate, which might explain why LPs don’t have all the power anymore. Now we have cases where some LPs are being scaled back in oversubscribed funds. Part of the reason for that is plentiful capital. For analysis of why that is, you could do no better than check out page 12, where Evelyn Lee explores a crucial situation having to do with allocation that plays nicely into the hands of a select band of managers.

One manager that has done well out of capital sources is KKR, which recently completed raising its debut fund. Much excitement brewed in the industry when it first became clear – in this magazine a few years ago actually – that the firm was organizing a real estate push. To find out how that has gone so far, see page 10, where Jonathan Brasse interviews the firm’s real estate head, Ralph Rosenberg.

There’s plenty more in the issue, which has a regulatory theme this month. Beginning on page 32, Katherine Bucaccio charts the latest on the Volcker Rule, followed by updates on Europe and Asia. The section culminates in a roundtable on the lingering issues surrounding AIFMD, starting on page 40.

Last but not least, we have our usual Blueprint interview. This month, we talk to Jeff Kaplan, the former Westbrook Partners man now heading his own firm. In the wake of the crisis, he felt it was a good time to go independent, and now he is beginning to reap the rewards of that choice. Read all about it, beginning on page 24.
By the way, we still don’t truly know where that pendulum is, but we will continue to talk about it. Luckily, it never stays still, so the debate rages on.

Enjoy the issue,

Robin Marriott
Editor, PERE