by Stu Williams, Senior Vice President, Business Development – eVestment Private Markets
While the fundraising market has been buoyant and hit record levels across the private markets, it is very much a tale of two stories; with larger managers scooping up an outsized proportion of capital relative to the market, and many headwinds facing newer funds. In general, competition is rife, investors are more discerning and investor relations teams are required to take new approaches and processes to raise funds.
Based on best practices we have seen with teams from a range of GPs that we interact with on a daily basis, these are six simple things you can do to improve your investor relations effectiveness, and capture investor relations alpha.
1. (Over) Use your Client Relationship Management (CRM) platform
The CRM platform should be a repository for “institutional memory” as well as a means to organize and nurture future commitments through contact planning such as portfolio updates for your investors and prospects. When you educate without expecting an immediate commitment, you build relationship credibility and show prospects your value proposition in a tangible way.
2. Study the Consultants
The power and influence investment consultants hold on the distribution of institutional assets is undisputable: “just about every public pension fund in America” has one or more investment consultants on retainer and an increasing number of allocators are also giving consulting firms discretionary power through their OCIO businesses (Institutional Investor, 2019). By the numbers, their influence is even more tangible: consultants have advised on more than $20 billion of public plans’ reported private fund commitments From Jan-July 2019 (eVestment Market Lens, as of 07/31/19).
There are three unforced errors you can eliminate when speaking to a consultant:
- calling on a consultant without first having a sense of how they view your asset class and specific strategy
- scheduling a meeting with a Consultant without having a clear idea “how” and “why” they select certain funds
- Not knowing where your firm sits in their ranking system when asking Consultants how you can win support.
This information is readily available, if you know where to look.
3. Call on prospective LPs well before you need a commitment.
Earn the trust of an investor who will become a long-term partner of your firm. With nearly two-thirds of investors managing their forward calendar of commitments at least 12-24 months in advance (eVestment, 2019), you need to be working with an investor 1-2 funds ahead of the time.
This further reinforces the concept that fund marketing is now 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.
4. Go into LP meetings up to speed
Learn the investor’s asset allocation, pacing plan for your asset class, and have a firm grip on both their over and under-performing fund managers before any outreach or meeting.
Another important factor to know is how they are constructing a portfolio. While investors are generally increasing allocations, not all are increasing their number of relationships to meet these. In fact, only 1/4th of investors are looking to increase their number of GP relationships (eVestment Private Markets, 2019), so going into LP meetings knowing this information is crucial to ensuring you are spending your time on high-conviction commitment opportunities.
Furthermore, demonstrating clear knowledge of the prospect’s background in your meeting introduction eliminates wasted time that should focus on the discovery questions that truly matter–determining the potential of moving this investor closer to committing to your fund. Don’t “pitch” your fund in your opening. Start with the prospective LP, and show them how seriously you take your fund investor’s needs from the first meeting.
5. Become more data driven
With LPs running more rigorous due diligence processes, requests for data are increasingly granular and frequent, and they are digging behind your numbers more than ever before. Yet based on our 2019 Private Markets Due Diligence Survey, it is clear that fund managers still underestimate the importance investors place on key pieces of analysis such as loss ratios, PME and the impact of fees.
It is now critical for a manager to take a more data driven approach to fundraising preparation and interrogate their own track record like an investor to identify possible red flags and questions, and prepare answers and explanations ahead of time. With this shift towards greater expectations and an increase in granular requests for data, outdated and often old-fashioned reporting processes and platforms simply won’t cut it.
6. Raising capital is a process, not a quadrennial drill.
Through my meetings with GPs on a daily basis, I’ve observed parallels between organizations with strong investment cultures and strong distribution cultures, and they are highly correlated. Run a disciplined IR practice that is always fundraising, always communicating, and always building your pipeline.
There are many valuable levers available to the private fund manager who is committed to growth and successful long-term investor partnering. Be unrelenting in the details, building durable and incremental improvement into your investor relations function. It will ensure you are always getting the best access to the opportunities in front of you, and that will build your reputation and your ability to drive quality relationships with investors.