During the boom times of 2006 and 2007, many investors were satisfied with receiving quarterly reports from their fund managers. In the current recession, however, LPs are demanding ever greater amounts of time and detail from private equity firms. Furthermore, many investors now want to hear directly from GP or members of a deal team, rather than an investor relations person or the CFO.
“There are IR partners at firms that know these companies, but no one knows these companies like the GPs themselves that sit on the board,” said a partner with an investment group. “We definitely want to talk to the GPs, and we get a little agitated if we have deeper questions that we can’t get answered from CFOs.”
Jennifer Glassman, managing director and CFO for TowerBrook Capital Partners, says the complexities of FAS 157, combined with the difficult environment for portfolio companies, are driving the increasing demands for more granular information. While there is some proprietary information she will not give out, like what next year’s budget looks like, she’s usually willing to get a deal team on the phone with LPs to discuss an investment.
This is not say that investor relations departments don’t perform a valuable role, but rather that firms should recognise what kind of information requests can be handled by an IR person and what should come straight from investment managers.
According to several GPs and CFOs, most broad fund-level issues can still normally be fielded at the CFO/IR level, including the expected cash flows and capital calls over the near term and what the reserves for companies look like, and how will they be deployed. Information that relates to companies across the whole portfolio, including queries about how debt is structured on a company-by-company basis, who is in breach of banking covenants and by how much, and what the net debt position is, can also be handled by an IR person.
The CFO or IR professional should take as many requests as they can, but when an LP has a question about a recent quarterly write-down or wants more detail about a specific company, then a GP should speak with the investor directly.
“If one of the LPs is drilling down on one specific company and is really interested in what’s going on and what the prospects are, then I think there is a smooth hand-off you make to the deal team,” said April Evans, CFO of Monitor Clipper Partners. “At the end of the day you want your LPs to have as much information as they want. There is nothing wrong with an IR person saying, ‘That’s a level of detail I don’t have a handle on, let me have someone from the deal team talk to you’, and they can answer that question and dig as deep as you want to go.”
At the same time, this requires a balancing act between keeping investors well informed and making sure their dealmakers aren’t spending too much valuable time on the phone. Evans says at her firm, all requests are generally funneled into one partner and then goes out from there to the appropriate person. “That is most efficient for both sides,” she said. “We can keep people focused on their deals and the LPs get rapid turnaround time.”
However, as one investor relations partner at a private equity firm said, some investment managers are better at making money than talking about it. But as investors demand more face with the deal teams, IR professionals should try to do training sessions with deal team members to work on their presentation skills and make them aware of the kind of questions they might be getting and how to answer them.
Brad Young, partner at investment advisory firm Altius Associates, said that while some GPs have been dragged begrudgingly into the communications process, more have gotten ahead of the curve in the last year. “I would say most GPs at this point have got it and answer the questions and return the phone calls in an appropriate amount of time, or even go out and do tours and talk to their LPs,” he said. “I’d like to see more of that at this point, but being available by phone in most cases is good enough.”
However, he adds that he hopes that firms that are communicating more in these tough times don’t disappear again when things improve.