The Constant Fundraiser

by Arbor Square Associates

As I write this, I am conscious of the icon at the top of my screen alerting me to a steady stream of new emails landing in my inbox.  And the fact of the matter is that this stream would probably have pretty much the same flow-rate regardless of time of day and (with one or two exceptions) day of the year.  Today we live in a world of constant information flows, updates, questions and requests.

It occurs to me that there is an interesting parallel here with the modern-day role of a private equity fundraiser.  I’ve been in the industry for the best part of 20 years now and I remember a time not that long ago when fundraising was very much a periodic event.  Once completed, the relevant files were put back on the shelf and the team got on with deploying the capital it had managed to collect.  Three or four years later, the files were dusted off and the cycle started again.  Fundraising was largely headed up by the GP’s senior partners and dedicated fundraising and investor relations professionals were few and far between.

How things have changed.  The fundraising and investor relations functions of a GP are seen increasingly (and rightly) as key functions of the GP machine, ensuring that there is always enough oil to keep the cycle of new deals, value-creation and realisation turning smoothly.  What’s more, these functions have become far more complex and their remits far broader, requiring experienced executives often with deal-doing backgrounds themselves.  Late last year The Stevenson James Investor Relations and Fundraising Survey 2013 found that 80% of the LPs surveyed envisaged a ‘large to substantial increase’ in the IR function’s remit going forward (although interestingly, and somewhat worryingly, only 18% of LPs surveyed believed that GPs are fully prepared to meet this need).

Also, what’s become obvious from my discussions with many LPs in recent times has been the blurring of the boundaries between fundraising and IR.  The main reason for this, quite simply, is the fact that fundraising these days never really stops.  Even if a particular GP is not officially ‘in the market’, the process of ‘marketing’ is unrelenting.  Part of this, of course, involves ensuring that your existing investors are well attended to in terms of their increasing demands for information on portfolio developments, co-investment opportunities, your views on particular market trends etc.  But more than ever it is also about building relationships with target LPs whom you hope to attract into the next vehicle.  Time and again LPs tell us that they want to really get to know GPs before committing to their funds – observing how they invest, manage portfolio issues, find exit opportunities and, last but certainly not least, build the trust and respect of their investors.

The implication for GPs is the need to effectively manage a ‘shadow investor base’, a process that is in many ways not that dissimilar to the management of actual existing investors.  A successful approach to this will not only build the trust of potential future investors, but also help them overcome one of their key concerns these days, namely that they won’t have the time or resource to do the necessary due diligence that today’s market demands and may miss out on the best funds as a result.  As Steve Pagliuca of Bain Capital put it in the December issue of The Triago Quarterly: “The best funds are often oversubscribed, so limited partners ought to conduct that general partner evaluation long before the launch of fundraisings.  Then they can move quickly when a fundraising starts.  Meeting with general partners between fundraisings – having an ongoing, up-close and personal dialogue with them – is key to getting into popular funds.”

No surprise then that more and more GPs are adjusting their approach to not only maintain contact with target investors in between official fundraisings, but also to ensure that datarooms and other information resources are updated regularly and, in a controlled way, made available to a broader range of capital sources that hopefully represent their LPs of the future.  As with email management, a key challenge for today’s private equity fundraiser is coping in an ‘always-on’ world.

Kevin McNally

Arbor Square Associates