Questions Lps Should Ask

REUTERS BUYOUTS OCTOBER 5, 2009/ISSUE 20

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10 Things Every LP Should Ask GPs

By Stewart Kohl and Béla Szigethy, The Riverside Company

f you feel a bit shaken right now— whether you are an LP, a GP or just about any other P in private equity—it’s because we are in the midst of a major shakeout. When the dust settles, the landscape will have changed, perhaps dramatically. Some have suggested that the number of buyout firms will decline by 25 percent to 50 percent. Some will say that this change is necessary and for the better, much like forest fires are important for the long-term health of the ecosystem. But this is scant comfort to the homeowner holding the garden hose ahead of the approaching inferno. Sitting in the captain’s seat of this 21-year old private equity firm, we may be hopelessly biased, but we believe strongly that private equity isn’t going away, especially not in the small end of the middle market where we play. Inevitabilities like death, estate planning, divorce, and changes in lifestyle, as well as corporate divestitures, drive our deal volume. We offer capital that is truly needed, and the best buyout firms drive consistently superior returns in this imperfect asset class. The primary determinate of where any buyout shop falls in the new world is whether it will be able to raise funds. Now more than ever, the future of GPs is in the hands of LPs. So, what should LPs consider in making these financial life-and-death decisions? Because Riverside has raised about $1.5 billion over the last 18 months, we’ve crisscrossed the globe and spent countless hours meeting face-toface with some of the world’s savviest investors, talking through many and varied questions. Here are some of the best.

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Stewart Kohl and Béla Szigethy

business, and that the promised returns cannot come without risk. They legitimately want to know where you’ve messed up and, more...