2.2.2.2. Changes in the core economics
The growing scale of institutional investors, and their increasing
allocations to alternatives, has enabled them to negotiate better
terms with each successive fund raising cycle. Most alternative
asset classes, such as private equity buyouts and hedge funds,
can be scaled up relatively efficiently. Venture capital is an
exception. For example, researchers have noted that the skills
required to complete a $100 million private equity buyout deal
can also be applied to a $1 billion dollar without incurring a
commensurate increase in costs.
The significant increase in
capital flowing into alternatives has adversely affected overall
returns, but the ability to scale investments has created net
benefits that can be shared between GPs and LPs.
61