Fresh from the frontier

It usually takes a limited partner three months to decide to commit to a fund, but if you’re a GP from an emerging market, you need to budget in a much longer time frame. The process is especially difficult if you’re a first time fund manager from an emerging market.
In a breakout session at last month’s Emerging Markets Private Equity Forum in New York, co-hosted by Private Equity International and the Emerging Markets Private Equity Association, a room full of GPs heard advice on how to approach institutional investors.
The panel included Andrea Kramer, a principal in Hamilton Lane’s due diligence group; Maninder Saluja, co-head of emerging markets private equity at Quilvest Group; and Cengiz Selman, a managing director at Acacia Advisors. Paul Denning, founder and chief executive of San Francisco-based placement agency Denning & Company, moderated the session.
Whereas an experienced manager can expect to schedule just one or two meetings with an LP, a first time fund manager should budget for 10 to 15. Not only will this give the LP more time to get to know you, it also gives you time to demonstrate progress and growth. This is because without a track record, you’re going to have to prove to the LP that you’ll do what you say you’re going to do.
If you don’t have a track record, you can present a pipeline of deals, showcasing your ability to source deals and conduct thorough due diligence, Saluja said. Demonstrating that you have local support in your country or region also helps to convince LPs in Europe and the Americas, Denning added. Kramer stressed the importance of demonstrating alignment with your existing LPs: giving your investors input in your investment decisions, communicating with them regularly, and maintaining good relations with your advisory board can all help to sway an investor.
Of course, it’s difficult to demonstrate any of these things before you have any capital. Denning recommended that in the very early stages of fundraising, firms approach types of LPs known to be more progressive. Family offices, for instance, tend to be early movers in new regions, and are less constrained by liability requirements.
Certain markets also lend themselves to sponsorship agreements, which can be a good first step as well.
Ultimately, with their home markets increasingly in disarray, it would be unwise for any LP to ignore the emerging markets entirely.
They’ll just need to learn to focus on forward-looking due diligence rather than past data, said Selman.