During the past decade, U.S. private equity fundraising surged from less than $60 billion in 2010 to a record $301 billion in 2019. However, due to the coronavirus pandemic, recent studies suggest activity will likely slow, and LPs will become even more selective. That’s reflected in an Institutional Limited Partners Association survey of LPs, published in April 2020. Consider these highlights from responses:?
- 6% say they are slowing commitments generally
- 7% say they are pausing all new commitments
- 23% say they are unsure and still evaluating the situation
- 26% say they don’t expect any changes
Some firms may view those numbers as a reason to stop fundraising. In order to succeed during this crisis, investment managers must recognize the value of continued fundraising efforts. It provides vital opportunities to strengthen relationships and trust if firms adapt their approach to LPs’ needs.
Investors haven’t placed everything on hold — Blackstone raised $12 billion during the last two weeks of March. That said, smaller firms face more competition for capital. The following guidelines provide a foundation for their ongoing efforts.
FUNDRAISING PREPARATION: FOCUS ON FLEXIBILITY AND REFINE VIRTUAL SKILLS
When face-to-face meetings aren’t possible, firms must plan carefully to ensure an effective online presence. By uploading important documents to virtual deal rooms, investment managers can provide transparency and share information securely and quickly.
Because presentations are moving online as well, investment managers should upgrade their videoconferencing capabilities. This requires extra steps to look and sound professional. For example:
- Use a stable internet connection and choose a videoconference service with appropriate security.
- Keep your web camera slightly above eye level.
- Make sure your background is uncluttered but not completely sterile (a blank white wall is not ideal).
These efforts demonstrate adaptability and consideration for investors. In that same vein, assess whether terms should be adjusted during the fundraising period. Investors may want more time to review the fund and perform more stringent due diligence. Consider extending the fundraising period to give investors ample time to complete the subscription process.
In the near term, investors will likely focus on existing portfolios. Be flexible and respectful of their shifting priorities — or risk sounding tone-deaf.
IF CONVERSATIONS HALT: EMPHASIZE TRANSPARENCY AND MEANINGFUL COMMUNICATION
Even without in-person meetings, investment managers can build strong relationships. Start with a strategic approach that selectively targets high-quality investors with long track records — and focus on investors with cash that needs to be deployed during a particular timeframe.
To convey consistency and stability in the midst of uncertainty, schedule monthly calls with investors. This helps keep your firm top-of-mind. Use that time to discuss how your strategy is prevailing during the current economic crisis. Show your firm’s systematic, data-driven approach that aligns assets with your investment thesis.
As you communicate with investors, know that transparency matters now more than ever. According to the Institutional Limited Partners Association survey, 60% of LPs indicated that GPs were providing more frequent and more detailed communication about portfolio company status. Emphasize quality over quantity and avoid overloading investors with information that lacks real insight.
Some investment firms will inevitably go silent during this time. They don’t feel comfortable communicating in a world of unknowns. But successful firms will share their thought leadership through blog posts, white papers, and podcasts. These communication tools can underscore your firm’s core values and help potential investors appreciate what you offer.
Webinars have also gained popularity with so many in-person conferences canceled. To share your expertise and showcase your firm’s strengths, consider organizing a webinar or joining one as a panelist.
RELATIONSHIPS: THE BEST INVESTMENT
Firms that communicate consistently and meaningfully with investors will be well-positioned when fundraising activity picks up. Although metrics do matter, don’t underestimate the power of relationships grounded in trust. The way your firm conducts itself now — with extra consideration for investor needs — will leave a lasting impression.
Reach out to a member of the STRAIT team to learn more about how we are helping clients provide enhanced investor communication during this unprecedented time.