Best Practices for Private Equity Investor Relations Professionals

Best Practices for Private Equity Investor Relations Professionals
April 17, 2016

As one of the leading sources of data and analytics for the private markets industry, eVestment Private Markets works with hundreds of GPs and LPs during their respective fundraising and fund investing processes. In doing so, we gain a unique perspective on both sides of the equation: what the burgeoning practices are in LP’s due diligence and how GPs are navigating these and other market conditions to successfully and efficiently raise capital.

We’ve distilled some of these insights into three best practices for private equity investor relations professionals to maximize their chances of an efficient and successful fundraise.

1. Flip the Due Diligence Tables

The well-used adage of “Fail to Prepare, Prepare to Fail” is apt within private equity fundraising. Without spending the required time preparing by conducting thorough research on prospective investors, your time could be spent on an LP that has little chance of committing. Sophisticated fundraisers are focused on ensuring they are spending their finite time and resource on investors with the highest chance of committing.

To carry out your investor “due diligence,” asking and answering these key questions offers a solid foundation to build your fundraise target list:

What is their pacing plan and typical bitesize?

  • Knowing how much they are planning to invest in your year of fundraising is critical – knowing how much they usually commit per fund is even more so to gain an understanding of how many “slots” the investor has available.
  • Due to public plans’ disclosure laws, this information can be sourced through the Asset Allocation and Strategic Plans published on websites or through FOIA requests – however, some plans make these easier than others to find. Accessing the actual documents is valuable as it gives further context.
  • Knowing their typical bitesize (how much they commit to a fund on average) also gives you confirmation on whether the size of your fundraise is a fit. If you’re raising a $500m fund and the investor is seeking to make $70-100m commitments, this will likely be too great an exposure to a single fund for the investor and consequently a harder commitment for you to close.

Who have they recently committed to?

  • Knowing their current portfolio of GPs and also who has been committed to in the last quarter or two gives you insight into how your fund would fit into their portfolio construction: have they recently committed to similar strategies? Is yours relatively unique? Knowing this gives you better context and information to construct your value proposition to that investor.
  • Investment Consultants produce quarterly portfolio reviews for their public plan clients which acts as a valuable resource to answer this question.

Looking for more insights into where to source and how to leverage intelligence on the market, investors, your peers and firm? Watch our on-demand webinar “Finding Fundraising Success” now.

2. Tailor Your Pitch

A common frustration of investors is to hear fund managers deliver a standard pitch.

Winning the attention and interest of investors is not done through delivering the same pitch to all – tailor based on what is most relevant to what a specific investor cares about.

If you’re targeting U.S., U.K., and Canadian public plans, this information can be found through the Investment Recommendations submitted to boards and committees. This is not readily accessible through plan website’s as more general Asset Allocation or Annual Reports may be, but mainly through Freedom of Information Act (FOIA) requests. The Market Intelligence functionality of eVestment Private Markets collates and organizes these document types and more from over 300 public plans into a one-stop research platform.

Investment Recommendations give valuable insight into the key strengths an investor has identified in a manager’s pitch, as well as the key risks of the strategy and the accepted mitigants. Obtaining this information is invaluable prior to an investor pitch as it allows you to leverage this information and tailor your pitch.

For example, if you know they have a strong preference for capital preservation and have highlighted it as a strength in other managers, you can expect that including data and wording around this would be well received by the investor: calculating and highlighting your loss ratio would be a powerful tactic to evidence your claims.

3. Turn the Due Diligence Lens on Yourself

Investors’ due diligence on your fund is going to be more sophisticated and data-driven than ever. eVestment’s 2018 Private Markets Due Diligence Survey found that 47% of investors and consultants always recalculate a GP’s track record. What’s more is that this level of scrutiny is not reserved for new manager relationships: investors and consultants surveyed reported that they spend, on average, 40 days on due diligence with a new relationship but still 21 days for existing manager relationships.

Viewing your track record in the same depth as an investor is imperative to be prepared for the resulting questions. You need to ensure you can support your key strengths with data, and also know the answers to potentially tough questions around what an investor may perceive as a weakness based on past performance.

A robust private equity performance analytics tool and process is key to making this efficient and effective as possible. Your time shouldn’t be spent manipulating spreadsheet models to produce analysis, but on more high-value and high-impact activities to progress your fundraise.

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