A first time for everything

There’s no denying the importance of investor relations at every stage of the fundraising cycle. More than half of limited partners surveyed recently by alternative assets advisory firm Stevenson James said a good IR team would be the deciding factor between general partners if other factors were equal.

But when a firm is raising its first fund, IR strategy is even more important. Asking investors to take a gamble on you and your fund when you have no track record is a huge challenge. Investors will be looking at multiple opportunities and leveraging relationships with existing GPs. They will not cut you any slack because you’re new to the market.

Pfm spoke with two first-time managers that recently closed their funds above target to find out what they did to draw investors, how they tackled bumps in the road and what advice they would give to others in their shoes.

AMP Capital’s flagship global infrastructure platform closed in December 2016 at $2.4 billion, 20 percent over its target. The platform was created by turning an open-ended European fund into a closed-ended vehicle, and launching it as the Global Infrastructure Fund. Assets acquired by the open-ended vehicle were transferred to the new platform, which set it apart.

“Most new funds are blind pools, but we had a seed portfolio of assets,” Manish Aggarwal, principal at AMP Capital, tells pfm. “This gave us a differentiating factor in terms of track record and ability to draw investors at the time of their commitment. However, it also added a complication when we were marketing to investors; normally a fund investor would just do their due diligence on the manager, but in the case of this fund they also had to do due diligence on the assets we held.”

The team did a lot of work with potential investors, helping them with the process. “We were also able to demonstrate how the team worked together, and draw up a proxy track record, showing how the assets would have performed if they were acquired by this fund structure in the first place, and how the experience of the team more widely would contribute to the success of the fund,” he says.

The team also faced another issue: a lack of investment experience in the US. While the firm has long invested in Australia and Europe, it has only been targeting the US for about three years.

To ‘get to grips’ with the market, the firm hired people with a US infrastructure investment history who understood the AMP Capital philosophy and could sell it to the clients. It also made an acquisition in the US during the fundraise.
The firm was aware, however, that it would be approaching investors as a new investment team, and took steps to ensure it avoided some of the pitfalls freshman managers often come across while fundraising. The team identified investors that could help bring the fund to a first close and during the initial conversations, asked the investor what it was looking for, rather than explaining what it could offer.

“It meant that in our first meeting we could tell them how we could meet their needs. As we have already deployed capital we were also able to show how our investments had performed and how they matched with their required investment outcomes,” Aggarwal says.
The firm also established its operational procedures before the first investor meetings. It was then able to answer questions about who would administer the fund, who would be looking after the legal business and who the accountant would be.

“We invited our service providers to meet potential investors while they were doing their due diligence. We were able to answer all those questions, and also show how we work with the operations team. One client told us they’d never had that level of detail before,” Aggarwal says.

Now the fund has closed, the GIF team plans to maintain its investor relations through a program of open communication – meeting them regularly and ensuring the firm is responding to investors’ reporting and information provision requirements.
“We’re also asking them how we can help their stakeholders, their trustees for example, and how we can make sure that they too have faith in us. We want to do this without overstepping of course,” Aggarwal says.

Hybrid structure

Australia-based QIC’s Global Infrastructure Fund reached a final close in March, 34 percent above target at A$2.35 billion ($1.76 billion; €1.61 billion). The fund combines attributes of both open-ended and closed-ended structures, which was one of the factors that pushed it across the finish line. The visibility of its team and its investor engagement strategy in new markets also played big roles.

It was the first time the firm had raised a global infrastructure fund, so it leveraged information from its real estate business to draw up a list of target investors.
“We didn’t use a placement agent for the fund, we established teams in different regions. Being on the ground meant we could have multiple conversations with potential investors and helped us to gain their confidence,” Ross Israel, head of global infrastructure at QIC, says.

Those teams found there were differences in transaction preferences, appetite for controlling or minority stakes, and the desire for evidence of active management from region to region. Environmental and social governance requirements and other operational concerns also varied. Some investors were interested in how the fund bought assets, others in how it sold them or how the team would add value to the asset.

“The narrative that you take to the market varies from region to region and there are different approaches that you have to take to each market. Competing products are different across regions, the level of sophistication is different. It’s another reason it was beneficial to have people there on the ground, rather than using a placement agent,” Israel adds.

Its experience on the road also quashed some assumptions that the firm had made about appetite for its offering.

“The world seems to change. Some regions or investors we thought would be keen to invest weren’t, while others that we didn’t expect to be so interested were – this was certainly the case in Asia, where we weren’t expecting much demand,” Israel says.
The fund was starting from scratch with no seed assets, and investors that hadn’t previously worked with the firm had to conduct extensive due diligence. To get around this, the fund leveraged relationships with existing investors in Australia and Asia. It raised 30 percent of the fund’s target fairly quickly which enabled it to hold a first close. The firm also committed its own capital alongside the cornerstone investment.
“This allowed us to build momentum and start investing, it showed our interests were aligned with our investors while the commitment from existing LPs acted as an endorsement. It also allowed us to demonstrate the fund’s strategy,” Israel says.

A dedicated team now oversees investor relations, post-close. They ensure LPs’ reporting requirements are met, but also hold regular meetings and events to make sure contact between investors and the firm is consistent. ?