Global economic contractions, combined with valuation issues created by FASB 157, are leading to an increase in the amount of highly detailed information being requested by LPs – a stark contrast to the boom times of 2006 and 2007, when a quick update from an investor relations was sufficient for most limited partners.
Now, LPs want to hear directly from managing partners or a member of a deal team rather than an IR professional, or even a chief financial officer charged wtih performing investor relations functions.
“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 that has committed funds to more than 200 managers. “If we are looking at a secondary, 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.”
While IR departments obviously perform a valuable service, especially considering the increasing demands on a GP’s time, firms should recognise what kind of information requests LPs want handled by an IR team member and what should be answered by investment managers.
According to several GPs and CFOs who spoke to sister magazine PEI Manager for its June investor relations issue, most broad fund-level issues can still normally be fielded at a CFO/IR level, including information on expected cash flows, levels and deployment plans for companies' cash reserves and capital calls over the near term. Information that is company-specific but across the whole portfolio, including queries about what the debt structures look like on a company-by-company basis, who is in breach of banking covenants and by how much, and what is the net debt position can also be handled by an IR person.
But when LPs have, for example, a question about a recent quarterly write-up and want more detail about a specific company, then a GP should speak with the investor directly. 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”.
However, some investment managers have better money-making rather than people skills. Accordingly, as more of them are required to spend time with investors, IR professionals should try to do training sessions with deal team members to work on their presentation skills and help them be aware of the kind of questions they might be asked and how to answer them.
Finally, while such communications are especially important in times of distress, firms should make sure they don’t disappear when things improve. LPs that are getting used to seeing a quick response won’t like having their calls go unreturned in the future.