Best Practices for Private Equity Investor Relations Professionals

14 Apr

Best Practices for Private Equity Investor Relations Professionals

Last week, eVestment attended The Capital Roundtable’s conference, Best Practices for Private Equity Investor Relations Partners in New York. It was a great one-day event covering emerging trends and topics highly relevant to those involved in communicating and interacting with the prospective or current limited partners of a private equity firm.

For those that couldn’t attend, we’ve rounded up some key takeaways from the event.

  1. The Investor Relations Role Has Evolved, Dramatically As the private equity industry has evolved over the last few years, let alone decades, so has the investor relations role. It has become, and will continue to be, an increasingly important part of the operations of a private equity firm. Investor relations is now a full-time role, with IR teams being built and IR professionals earning status as Partners in firms.PE firms are rightfully putting this importance on the IR role as there is an increasing need to have a consistent communication strategy and voice in the market, promoting the firm’s capabilities and value add. It’s becoming more integral to the success of a general partner as products expand from traditional buyouts to debt, real estate and other, and new types of limited partners are investing.Speaking to investors either during fundraising and/or annual meetings used to be sufficient touchpoints. Now, with more complexity in products and more competition from other fund managers, communication should be more frequent and more meaningful. You’re also increasingly competing for investors’ time and so you need to think about how to make each touchpoint truly worthwhile.
  2. Investors are asking for and doing much more with data.Since the global financial crisis, investors require access to more granular performance data so they can perform deeper due diligence. As an IR professional, you need to ensure you are prepared and able to provide the information LPs are requesting, but also understand what they are doing with your data and what they are looking for so you can pre-empt questions they may have.On a related note, transparency was again a hot topic at this year’s event. Generally, transparency in the industry has improved, but LPs are looking for more across all managers. As a GP, you need to think about how you “control” your transparency. You have a lot of information, especially on performance, but you need to think about distilling it down to the right data points that you want to share, and sharing it in a way that is meaningful for investors – not just thinking of transparency as a box to tick.While not shared at this conference, a crucial point is also the security of all this information. How is your data shared with investors and how do you ensure it is shared securely and privately?
  3. How do you stand out?Investors meet with hundreds of managers each year and they have an increasing number of managers and strategies to choose from. There is now a strong requirement for GPs to stand out among the crowd.How do you, as an investor relations professional, achieve this?Panelists discussing this point at the event believe that it all comes down to building trust, being able to clearly explain what the firm does to a high level of granularity and clearly articulating your story and value.Building trust ties back to the point about data and transparency. Being able to backup your story with data will go immensely far in building trust, along with showing performance as it really is – without unnecessary omissions or glossing over bad deals. There’s a significant opportunity for managers to take the lead on this to stand out from the rest of the market.
  4. Pre-marketing is as important as fundraising
    A definite takeaway was that fundraising is done better when you are not fundraising – the concept and practice of pre-marketing has become more popular in private equity and discussions at this conference highlighted why there needs to be constant communication with LPs throughout the fund lifecycle. Fund marketing is now almost perpetual and you should be using the times when you’re not explicitly fundraising to build your pipeline and also build your firm’s brand so that prospective investors have a strong idea of your values and expertise before you go to market.GPs should also be including LPs that said “No” first-time around in their communications and not discount them for future investment opportunities.
  5. Prepare for compliance and regulation
    Compliance and regulation, like within the industry, was more prominent in discussions. It was interesting to hear about more and more firms hiring compliance officers. A key point was that as compliance and regulation are words becoming more frequently mentioned in private equity, you should be prepared for its their implementation and think about how it will affect the IR role.Are you confident that the performance figures you’re sharing with investors are calculated correctly? Do you have a definable and audit friendly process for this?
Interested in further exploring investor relations best practices and how you can improve your chances of fundraising success? Download our whitepaper, developed in collaboration with Benjamin Ball Associates – Getting to Yes: Fundraising Strategies and Advice for Private Equity Managers