LPs: You’re less different than you think

Fund managers aren’t always doing a good job of demonstrating what separates them from the pack, delegates heard at the 2014 PEI Investor Relations Forum.

GPs' overreliance on buzzwords and bland marketing pitches was one of the dominant themes at this year’s PEI Investor Relations Forum in New York City this week.

“We’re on track to meet 900 GPs this year and it’s amazing that they’re all saying the same thing,” one LP on stage told the audience full of investor relations professionals. “So skip over those PowerPoint slides and get straight to what makes you different. It’s not easy to convey that message in a one hour meeting, but I want to know what your edge is.”

The importance of an effective pitch seems especially important in today’s fundraising environment. A large majority (70 percent) of North American LPs are planning to back a first time GP in the next two years, according to Coller Capital’s latest Global Private Equity Barometer. Approximately 58 percent of European LPs plan to back a first time fund, while 53 percent of Asia-Pacific LPs expect to invest in debut funds, the study found. However, the flipside is that a staggering 84 percent of LPs will refuse to re-invest with managers whose last two or more funds they backed, the survey found.

At the conference, LPs offered some guidance on what can capture their interest.

“I always like when it shows a GP did their homework before reaching out to me. Do they know that I require a certain degree of ESG reporting before calling? Or if I have a vast amount of US-mid market funds in the portfolio, do I need more? Well if you think so, I need you to really crystalize to me what makes you different,” a second LP said.

Another marketing strategy LPs said they liked at the conference was more discussion with operating partners. “A lot of the time you’re only speaking with the firm’s deal partners – they’re usually the best communicators. But I would encourage more GPs to offer the chance to speak with the people responsible for value-add,” a third LP said.

The first LP also mentioned a few “marketing mistakes” he’s recently seen GPs commit. “In presentations, please put net IRR on your returns, because you know you’re going to get the question,” he said. “There’s also folks being creative with their projected IRR when they measure their performance against a benchmark. Projected IRR is good, but comparing it with that benchmark of actual returns can be a little misleading.”

Investors at the forum also mentioned that regular communication with their GPs was important but acknowledged it can be difficult for fund managers to know how often to reach out. “Well the first thing is that if there is something wrong in the portfolio, I want my GP to be proactive and talk me through it,” a fourth LP said on-stage. “The other thing GPs need to know is we can’t spend all our time and attention on just one relationship, so communication is going to have to be a little dictated on our commitment size with each GP.”