Robots with IC votes: AI. The topic everyone wants to talk about. Which is difficult when no one has much to say. Audience polls taken live at the Private Funds CFO New York Forum this week repeatedly showed that very few firms have adopted AI for anything at all. Many cite the still-unknown risks associated with the advanced technology.
But for some, the robots are already here.
One partner at a mid-sized firm recalled an anecdote from another recent conference. There, a member of a large private equity shop related that the firm “fed all of their investment memos from the last 20 years into this AI robot that they had, and asked it to share what they thought the outcome of that investment would be, and it was so spot-on that that robot now has a vote on their [investment committee].”
The long hello: It’s no secret that fundraisers are taking longer than many have experienced in their careers. One attendee said that they are expecting to close their current fund after two years of fundraising. Another said that the average he was seeing is about one and a half years.
As one attendee said, firms are all competing for the same allocations, particularly in the mid-market.
CFOs almost ubiquitously say that they are in a constant fundraising mode, keeping in regular touch with existing investors as well as those they are trying to create new relationships with. But maintaining those relationships can result in exceptional value for the firm. One attendee, who among other things is the main contact for current and prospective LPs, said, “There’s no term of the LPA that I’m not involved in. There’s no side letter that I’m not involved in.”
But of course, the resulting load of work is significant. “When I worked at a firm that had an IR person, our lines were pretty distinct. That person did relations, and I did investor reporting.” Now, with investors also regularly asking for bespoke detailed data, they’re the same role, she said.
But that heavy involvement with both relations and reporting also makes the CFO the best person to tell the unique story of the firm’s performance to prospective investors. That’s all-important when you’re trying to make it on what one attendee’s prospective investors calls “the shortlist for the beauty contest.”
Pool party: Some firms are battling these headwinds by using aggregators of the likes of Hamilton Lane and Cambridge Advisors – notoriously difficult to get in the door with, though still accessible to smaller firms. Pfingsten Partners recently closed their fund above target in part by leveraging Cambridge Advisors’ aggregation services, though they also required studious maintenance of existing relationships, I understand.
Word is that other businesses servicing small mid-market firms are popping into investor aggregation services. New York-based Saw Mill Capital is using the services of a firm called ACG (not to be confused with the industry organization Association for Corporate Growth). One panelist even said that they’re using such consultants for co-investment, which she said are becoming more like a traditional fundraise. Another attendee said that, traditionally, their funds were 20 percent co-investment; now, it’s 80 percent.
And, of course, firms are also looking abroad for investors, not just in Europe but in Asia and the Middle East, in particular. One panelist urged attendees to “look broadly” when searching for new investors.
DC gossip: My keynote interview with Brad Bailey, senior vice-president of government affairs at the American Investment Council, got some very flattering reviews from attendees, who particularly loved some of the gossip coming out of The Hill that he had to offer. But it was off the record, so if you weren’t there: lesson learned.
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