This is the first of a four-part blog series 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 GPs accelerate fundraising and improve investor communications.
The Importance of Leveraging Granular and Timely Market Intelligence
As one of the leading sources of institutional investment data and analytics, eVestment Private Markets interacts with hundreds of GPs and LPs, and we have the ability to bring you the most current perspectives on investor behavior and commitment preferences.
One of the key trends we are seeing at the moment is that while GPs want to raise capital faster than ever, investors are performing more due diligence than ever before. These priorities can seemingly be at odds with each other – how can a GP efficiently get through a fundraise if due diligence requirements are tougher than ever before?
GPs who are taking a systematic approach to fundraising, leveraging analytical tools and researching their target investors are successfully able to balance this equation and achieve success. This level of preparation enables GPs to tailor their pitches to better appeal to an LP and know what specific pieces of information are of the utmost importance.
However, to be this prepared and effective requires a robust and granular understanding of multiple components, which we’ll cover in this multi-part blog series. Step one is to Understand the Market.
The three-part process for planning and executing an efficient and successful fundraise.
Gauging Market Sentiment for Your Fund
The first step in a successful fundraise is to have a strong understanding of what investors and consultants are thinking, which consultants are favoring your strategy, which investors are allocating to your strategy and what market trends may be a factor.
The goal here is not to tell your investing team to change your fund strategy based on this – there’s a solid investment thesis in place that you and the team believe in. Instead, knowing how the strategy is perceived in the market enables you to better tailor how you pitch your fund to investors, what objections to tackle ahead of time, and pre-empt and be prepared for questions.
But how do you get a timely and accurate view into what your potential investors and consultants are thinking?
We believe that the Public Fund market is the most reliable indicator of investor, competitor, and consultant activity; because it is fully transparent and easily verified through public disclosure. Leveraging Public Fund intelligence gives you insight into the activity of one investor type (public funds), but it also allows you to access documents and intel submitted to them by their consultants and managers that pitch to them. With this, you have a view of the key trends shaping other investors’ decisions and gain unparalleled competitor insight.
What insights do public plan sources provide?
While information is often posted and available through public plan websites, it can be extremely time consuming to find. Not all information that is “publicly available” is made available publicly without a Freedom of Information Act (FOIA) request, either. By taking advantage of technology and tools you can mitigate these issues. For example, eVestment Private Markets’ Market Intelligence tool sources and collates documents from >300 US, UK and Canadian plans all in one place – making it more efficient and gaining more timely access to them.
How and Where to Find Actionable Intelligence
There are a number of key pieces of information you can access and leverage to gain a comprehensive understanding of the current market conditions:
Before hitting the fundraising trail, it’s imperative to know key market trends: what the market is saying about private equity in general and what potential headwinds may be facing you.
To find this, you can leverage Consultant Research documents that are presented to public plan clients. By digging into documents like these, you can find out how the consultant is advising their many clients and know how receptive they may be to your fund, if it fits with their outlook and, consequently, how you can tailor your pitch to address this.
Using our market intelligence tool, we’ve summarised some of the key trends being featured in a recent report by NEPC to one of their public plan clients.
European Mid & Small Cap buyouts are being viewed as positive, with North American strategies only receiving a “Neutral” rating.
NEPC highlight that markets in spaces receiving a “Neutral” rating are relatively efficient, and so sector specialists, and/or those with competitive advantage in deals are the most attractive.
Growth & Venture
European Venture & Growth received a positive outlook in a recent NEPC report, with North American strategies only receiving “Neutral.”
Valuations were raised as a concern of investing with US managers, and so US investments should be with GPs who have “value-add that goes beyond that of a capital provider.”
Building Your Target Investor List: Who is and isn’t allocating
Now that you’re armed with the intel on what the market is saying about the strategy, you want to start building a list of potential investors – who you should and shouldn’t be spending time targeting.
After all, successful fundraising is as much about finding good targets, as it is about not wasting time on investors with a low chance of committing.
To know who is allocating to specific asset classes, and which ones are making significant changes to those allocations, look for Asset Allocation Studies and Strategic Plans. These are set annually, but updates are published regularly throughout the year.
For example, in February 2018, an update by Portfolio Advisors for Los Angeles Fire & Police Pension (LAFPP) confirmed their increase in annual private equity commitments to $525m – $575m (up from a maximum of $475m) in order to meet their new target allocation of 12%.
These documents also highlight how many commitments they expect their annual allocation plan to be comprised of. For LAFPP, this is expected to be 20-25 commitments.
Recent allocation announcements
Recent allocation announcements sourced from eVestment Private Markets
The next step: Investor/Fund Fit
So now you’ve identified an investor, or group of investors, that are looking to allocate to your strategy. This is a great base for launching a fundraise, but really just the starting point. The next step is to gain a deeper understanding of those investors to know if they are really worth spending time on.
You can do this by asking and answering a series of key questions about the investor.
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 including:
- 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.