How to Find Private Equity Fundraising Success: Assessing Investor and Fund Fit

18 Oct

How to Find Private Equity Fundraising Success: Assessing Investor and Fund Fit

This is the second of a four-part blog series for private markets investor relations professionals, exploring how to find and utilize various key sources of information on the private equity market, US public plan investors and other fund managers to help accelerate fundraising and improve investor communications. Find part one, “Understanding the Market”, here.

By digging into consultant research and allocation plans of investors as your first step in fundraise planning, you will have gained a sense of the market’s sentiment for your strategy and identified an investor, or list of investors, who are looking to commit to your strategy.

While this is a solid foundation, more research needs to be carried out before you launch an outreach or pitch to these investors. You need to ensure they are qualified targets: that their characteristics and plans are compatible with your fundraise beyond just their appetite for your strategy. With time and resource one of your most valuable assets during a fundraise, you need to ensure it is used most efficiently and effectively and not wasted on investors with a low likelihood of committing.

To determine this investor/fund fit, there are three key questions to ask and answer.

Step two in planning and executing an efficient and successful fundraise: investor and fund fit research.

1. What is their commitment bitesize?

Determining if you are a fit begins with knowing – what is their typical bitesize? Simply, how much do they usually allocate to a single fund of your strategy.

If they are an investor that prefers to make fewer, but larger, commitments then this can drastically affect compatibility. For example, if the investor plans to make $100m commitments, and you’re raising a $500m fund, they aren’t likely to make, or be able to make, a commitment to your fund.

To find out their bitesize, quarterly portfolio reviews by the investment team or their investment consultant are a key document type to utilise. For U.S. public plans, these documents contain a portfolio holdings report, listing all managers within the LP’s portfolio, the commitment size made to each, segmented by fund type or other characteristics.

In the below example of State of Connecticut, the managers are split out by fund type with valuable details on how much they’ve committed and when.

Knowing this information first can help you disqualify, or at least deprioritize, specific public plans from your list and move on to more viable targets.

Studying the portfolio through this document type can also help you spot likely “recommitments” that may prevent you from getting attention and, importantly, identify managers experiencing sustained underperformance through their funds that will soon be facing pressure across their LP base. This gives you valuable information on both new capital raise opportunities and competitive openings to capitalize on.

2. Who have they recently committed to?

In addition to knowing their bitesize, another important question to answer whether you are a fit is: “who have they recently committed to.”

By looking at the managers committed to in the last quarter or so, you can spot trends and assess whether appetite for your strategy has already been fulfilled by peers or competitors.

Knowing which funds have recently received commitments also enables you to carry out additional research to figure out exactly why the investor decided to invest in this competitor and how can you use that information to your advantage when pitching (watch our full webinar to learn more about how to find peer pitchbooks and granular peer intel).

Again, this intel is available in the quarterly portfolio and/or investment recommendations conducted by consultants or the investment managers at the LP themselves.

Want to gain access to the latest U.S., U.K. and Canadian public plan portfolio holdings, commitment plans and competitor intel? Request a demo of our Market Intelligence Platform now.

3. How many slots do they have left?

Knowing historic commitment trends is useful to assess overall fit and learn more about the Plan to help you tailor your pitch. But it is also imperative to know future plans, including how many commitment “slots” they have available for the remainder of the year, or your intended fundraising period.

For U.S. public plans, you can cross-reference the portfolio holding/quarterly review documents with the plans’ intial strategic plan to determine this. Strategic plans will lay out the investors’ commitment amount for the year and often explicitly reference how many funds this will be made across.

Commitments may have been made to managers but not feature in the Portfolio Holdings yet. Ensure you check this too and don’t overestimate the number of slots still available.

Portfolio holdings and commitment announcements sourced from eVestment Private Markets

At this stage, after reviewing the market and some information about specific investors, you will likely have a robust understanding of if your strategy, fundraising timeline and fund characteristics are a fit for this investor.

For investors that do fit, the next step is knowing how to tailor your pitch based on what is important for that specific investor. To know this, you need to answer the questions: Why have the committed to recent funds? And what do they perceive as strengths and weaknesses?

Webinar: Finding Fundraising Success

Explore how private markets investor relations and fundraising professionals can source and leverage more timely and granular market, peer and firm intelligence to accelerate fundraising and enhance investor communications.

Topics covered include:

  • Where to find granular and actionable insights on U.S. public plans’ commitment pacing plans.
  • How to find out why specific GPs and their funds have been recommended by consultants.
  • The key questions to ask to ensure better investor targeting, and where to find the answers.
  • Best practices in leveraging your track record to win over investors.