Why the COVID-19 pandemic is changing LPs’ commitment preferences

The COVID-19 pandemic is not the first crisis that most LPs and GPs have had to navigate through. Yet the knock-on effects are different this time, and there is another key challenge: a completely digital process.

Members of the private markets team from Aberdeen Standard Investments and APG Asset Management recently joined eVestment Private Markets for a discussion around how their due diligence processes have changed in the last few months, and the challenges and opportunities the crisis has presented.

One of the issues addressed was, how is a purely digital execution of due diligence changing how LPs put money to work? Read an excerpt of the webcast below for the answer, and watch the full 30-minute conversation here.

Katey Bogue speaker highlightKatey Bogue (eVestment Private Markets): The private markets space has always been very relationship driven and a lot of the diligence process is about getting to know the teams as well as the quantitative work. With a fully digital process, how are your teams managing this? What’s changing within your process and how are you having to use technology or change how you’re doing your day to day work, to deal with the current environment?

Christopher Ragazzo - APG Asset ManagementChris Ragazzo (APG):
For us back in March, maybe even a little before March, we had cut down on travel and then travel stopped essentially for everybody. So you’re right. All the relationship aspects of the diligence and having first-time meetings, face to face meetings, onsite diligence, that’s all completely changed.

In terms of the process, we were very busy in the first half of 2020. We probably had a dozen re-ups scheduled to close in the first half of the year. Since they were re-ups, we already had relationships with teams and it wasn’t a big burden to finish things up remotely. The bigger issue has been the newer relationships where we don’t know the teams as well and trying to complete that diligence remotely. In particular, any situation where it’s been a brand new relationship that started after March where we hadn’t met the team or hadn’t met them for several years. If it’s something where we haven’t seen them for a while, it’s been difficult. We actually had a situation where we passed on one opportunity, partly because we didn’t know when we would have a chance to meet them.

Robbie Young - Aberdeen Standard Private MarketsRobbie Young (Aberdeen Standard Investments):
We always talk about investing being a mix of an art and a science. I think the science bit, the analysis, has been pretty straight forward as that was all done desktop already.

The art element is really building relationships and getting trust and working out team dynamics of the GPs we’re looking to begin investing with. That is far harder.

I’m not sure anyone has found the perfect solution to that yet, but we are getting better at it. We’re doing far more interacting with GPs on these types of calls. I think we are probably talking to our existing GPs more on this type of call than we might have had in a face-to-face normally. For re-ups, it’s pretty straightforward.

We know the team well, if we’ve all been doing our job properly the last few years, and we can invest in a fairly straightforward manner. And the same for prospective GPs, or new GPs that we’ve been building relationships with over a number of years.

For these, I don’t think it matters as much that you can’t necessarily see them during the actual diligence process. I think the [GP] group that is by far the hardest is where you have not met them and you do not have a relationship before this. And I think it’s really, really hard to build that at the moment. It’s something we’re all getting used to and have to get used to, but it’s taking time.

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