Investors gain upper hand as private equity weakens

By Megan Davies and Simon Meads

BERLIN (Reuters) - Private equity firms will lose the upper hand to their powerful pension and endowment fund investors, as they struggle to raise cash.

Heavyweights at the SuperReturn conference, the industry's main get-together, said on Wednesday in Berlin that investors in the funds, known as limited partners (LPs), would have more power to dictate fees and fund sizes.

"Going forward, the LPs will be heard much more, and their concerns on deal fees, size of funds ... will have to be addressed," said Carlyle Group co-founder David Rubenstein.

"The pendulum will have swung ... For the next few years, they have the balance of power."

It would be a marked deviation from the boom that lasted from 2004 to 2007, when private equity executives, or general partners (GPs), were raising cash hand over fist and could dictate terms to investors.

Private equity companies are looking for alternative ways to spend roughly $1 trillion (688 billion pounds) of unspent investment capital as the market for leveraged buyouts has virtually halted, but investors often question those strategies.

Private equity firms also face trouble with many of the companies in which they have invested as those companies struggle under heavy debt loads piled on by the firms.

The interests of private equity firms and investors have not been aligned in the last few years as the buyout houses sold stakes in companies to each other, said Guy Hands, the chief executive of Terra Firma.