Key Takeaways

  • John Renkema, former private equity head at Dutch pension giant APG, rejects the conventional label of institutional LPs and fund GPs as equal "partners."
  • Institutional allocators function as paying clients purchasing an asset management service through management fees and carried interest.
  • True economic alignment requires confirming that carried interest goes directly to active deal teams rather than GP holding company shareholders or retired executives.
  • Blind pool fund structures contain built-in conflicts of interest that require institutional LPs to maintain professional distance rather than collegial familiarity.

The Fallacy of the Partnership Label

Private equity marketing runs on the language of partnership. Pitch decks and annual general meetings routinely frame institutional allocators and fund managers as joint travelers on a shared mission. Renkema dismisses this framing as inaccurate and counterproductive.

“I think we're clients,” Renkema explains. “Partners is such a strange word because we simply do not do the same thing on the other end. You're the client. You're paying for services through management fee and through carry to the GP and they provide the service.”

Conflating client status with partnership softens the critical judgment allocators must apply. When LPs view GPs as business associates instead of service providers, they miss contractual cracks. The LP provides capital and pays for execution; the GP runs the strategy and charges fees for that execution. Treating the dynamic as anything else obscures the commercial terms of the trade.

Auditing the Carry Distribution

The primary test of manager alignment is not whether fees look standard on paper, but where the incentive dollars end up. Base fees keep the lights on, while carried interest shapes daily investment behavior.

“Fees of course. I mean you don't want to pay too much but in the end it's alignment of interest,” Renkema notes. “You need to see that the team will work for you and is incentivized in the right way.”

The risk emerges when carried interest gets captured at the top. In mature private equity houses, carry points often accrue to non-executive founders, GP holding companies, or external balance-sheet investors. When junior and mid-level deal leads execute transactions without direct carry participation, the engine stalls. LPs must examine internal GP economics to ensure the individuals sourcing, negotiating, and sitting on portfolio company boards receive the upside. If the carry flows to retired partners or corporate owners, the allocator pays top-tier pricing for an under-incentivized team.

Managing Structural Conflicts in Blind Pools

A ten-year closed-end fund commits capital to investments that do not yet exist. That setup creates natural friction points around capital deployment rates, follow-on reserves, and style drift.

“It's a GP that manages the fund and there are conceptual conflicts of interest even within the structure that you're constrained together in that need to warrant you to keep a professional distance,” Renkema says. “Truly grasping and understanding the relationship between an LP and a GP and how actually alignment of interest works is something you only can learn when you live through it.”

When market conditions turn, those structural tensions surface quickly. If a fund underperforms or liquidity dries up, managers face conflicting pressures between preserving fee revenue and returning capital. Maintaining clear institutional boundaries allows LPs to evaluate performance objectively, enforce mandate constraints, and hold GPs accountable for strategy deviations without personal relationships muddying the math.

Why It Matters

As institutional capital concentrates in multi-strategy platforms and GP stakes transactions, carry economics increasingly decouple from deal-level execution. Renkema's stance signals a broader institutional shift back toward transactional scrutiny, where sophisticated allocators treat GP governance not as a collaboration, but as a vendor relationship requiring strict contractual verification.