One effect caused by the involvement of investment banks in the PE market is making the market more efficient (through auction mostly). It kind of beats the whole purpose of PRIVATE equity, which is to capitalize on the information imperfection.
Large funds generate very moderate returns. They do get fat with the 2% management fee, and they do gain tremendous economy of scale because of the size of the fund. 20% carry of a moderate profit of such huge fund is pretty sweet too. But the beneficiary is more of the GPs than the LPs. I am a little surprised that the employees pitched in 1 billion in the fund, since by doing so they have become the LPs.
Will there be issues of conflict of interests, between the investment arm and the PE division?
