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Six Steps to Achieving Investor Relations Alpha

by Stu Williams, Senior Vice President, Business Development

Each new fundraising environment brings new challenges for fund managers. After contending with the challenges of virtual fundraising of 2020, GPs are now navigating a market of hybrid fundraises and stiff competition from firms launching new strategies and others coming back to market faster in order to take advantage of LP demand for private markets exposure.

While as a member of the IR team you can’t control every factor that goes into the success of a fund raise (i.e. past performance), you can control a number of other levers to give your firm the best chance of hitting your hard-cap. We call this Investor Relations Alpha.

Based on best practices we have seen with teams from a range of GPs that we interact with on a daily basis, here are six simple steps you can take 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 consultant 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 clear: according to date from eVestment Market Lens, consultants have advised on nearly $19.7 billion of public plans’ reported private fund commitments from January to May 2021.

Here 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 a consultant how you can win their 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. Large institutional investors are sometimes very slow and deliberate when it comes to making commitments to new fund managers. As such, you need to be working with an investor 1-2 funds ahead of the time to enhance your odds of winning a commitment.

An “always on” approach to fundraising is imperative to build your potential investor pipeline in advance of a formal fundraise process.

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4. Go into LP meetings up to speed

Learn the investor’s asset allocation, pacing plan, and standard bite size for commitments in for your asset class. Have a firm understanding of both their over and under-performing fund managers before any outreach or meeting.

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 2020 analysis of buyout manager pitch decks, it is clear that fund managers still underestimate the importance investors place on key pieces of quantitative analysis such as loss ratios and PME.

It is now critical for a manager to take a more data-driven approach to fundraising preparation. You must interrogate your own track record like an investor to identify possible red flags 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 will not 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.

We talk to hundreds of GPs each year. Some are pushing the outer edge of data and technology; many seem overwhelmed and reactive. That hesitancy is your opportunity to capture investor relations alpha.

Is your pitch deck differentiated?

One of the biggest challenges facing GPs is standing out from the crowd when it comes to their pitch deck.

In Science of Private Equity Firm Differentiation we use machine learning and natural language processing to analyze 150+ buyout fund pitch decks to understand how differentiated, or not GP presentations really are.

Click the link below to read the full analysis.

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