The world of fund management, and more specifically private equity, the relationship between the General Partners (GP’s) and their institutional capital partners (LP’s) is incredibly sensitive. If a fund manager delivers low returns for a fund, even after several successful funds, the relationship can be ruined forever. It’s incredibly important for GP’s to set aside their own needs (e.g. high management fees) and focus on interest alignment with their LP’s.
One way to do this is by adopting the perspective technique that Pink talks about. The first principle Pink discusses is to “increase your power by reducing it.” Often times, GP’s feel the need to dictate (and in some cases, manipulate) their relationship with LP’s by lying about their investment track record, failing to stay true their investment philosophy that the LP’s originally bought into, and finally, degrading the importance of the LP’s need-to-know status. Open relationships (within the legal parameters), viewing each other on an equal playing field, will encourage healthier relationships and ultimately more competitive returns. The second principle is to “use your head as much as your heart.” It would be much easier for GP’s to treat their LP’s with respect if they made a conscientious effort to understand the thought process behind fund negotiation and relationship maintenance. Lastly the principle of strategic mimicry. This goes beyond the more technical aspects of the GP/LP relationship. This is relevant for any relationship interactions. The studies showing the increased level of performance and one’s ability to act like a “chameleon.” GP’s can make their LP’s feel more comfortable if they understand the importance of a high EQ, which is equally physical as it is cognitive. Fund retreats can be an excellent opportunity for GP’s to display this ability.
In summary, the three principles that lead to a higher level of attunement are incredibly important for anyone, in any career. However, the distrust that has historically been an issue with fund managers and their limited partners can be especially remedied by implementing some of these perspective-changers in real life practices.
BoweryJE22