Warburg Brushes Off Hurdle Question

Nov 20 2014 | 11:19am ET

Warburg Pincus isn’t worried that clients feel they are getting a raw deal without a performance-fee hurdle, a top executive said this week.

Speaking at the SuperInvestor conference in Paris, Martin Dunnett said, “If you’re providing the performance at the levels that we are, it’s not an issue at all.”

The issue of fee hurdles—minimum performance levels below which firms do not charge incentive fees—was sparked once again earlier this month by a report that Kohlberg Kravis Roberts had assented to one on its new European fund. KKR’s last such fund underperformed peers, a problem that Dunnett, a London-based managing director at Warburg, does not consider a problem at his firm.

What’s more, Dunnett said, Warburg investors are getting a deal, anyway, as the firm does not charge monitoring or transaction fees, as do others.

“The sacrifice we give up on those is far greater than the sacrifice on the hurdle,” he said.

“If you look at the way the carry structure works within the firm, when investors see that, they are happy we don’t have a hurdle. It wouldn’t work. The carry structure is different to every other firm in the industry and it rewards people for the value that they create.”

Dunnett said that only one of the 270 investors in Warburg’s latest flagship fund, which closed in May with $11.2 billion, expressed concern about the lack of a hurdle.

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