When was the last time you heard a really good industry anecdote? The last time you became engrossed by a private equity professional as they outlined their firm’s story and strategy (which one pension executive who sits at the receiving end of these presentations characterises as ‘selling the dream’)? Did your attention drift? That cloud passing the window catch your eye?
In the battle for capital, GPs who are able to win, and hold, investors’ attention are better placed for success. It’s true that the trend has been towards providing as much data as possible to both new and existing investors to illustrate track record, give comfort around the state of portfolio companies and so on. That’s all important, of course, but the need for a personal narrative also remains great and can sometimes get lost amid the PowerPoints.
Many GPs are “slaves to their slides”, Richard Lichter, IR-focused managing director at secondaries firm Newbury Partners, told delegates gathered in New York this week for the annual PEI Investor Relations & Communications Forum. Too many GPs obsess over the need to provide detailed data points to their LPs and forget the importance of telling their story in a way that engages their audience and makes use of real life examples (“tangibles”, as one professional at the conference called them).
Apax Partners communications head Ben Harding says his firm tries to address this in part by seeking “an emotional connection” with investors, stressing the need to nuance reporting to suit the target audience, rather than using a formulaic, one-size-fits-all approach.
It’s a tactic that also needs to be employed beyond interacting with investors, according to delegates at the conference. A big talking point on stage and in the hallways, unsurprisingly, was the US presidential election, the negative way in which private equity firms have been depicted and the need for firms to engage with the media or politicians to tell their side of the story.
While the industry hasn’t always been very good at doing so, real headway has been made in recent years. In addition to trade associations like EVCA working to publish case studies and put out facts to dispel myths about the industry, a handful of firms, including Permira, The Carlyle Group, Apax and The Blackstone Group have taken to producing videos explaining their involvement in select investments.
Blackstone has a video on its website entitled “Rescuing America’s Industrial Base”, which describes how the firm has turned around a Delaware refinery. “When ideas, capital and experience come together, it’s a winning combination for communities, investors and economies and that helps all of us move forward”, it concludes. That’s just the sort of message (albeit a pretty anodyne one) the public needs to hear at a time when some are calling into question the industry’s economic role and relevance.
It’s not just good stories that need to be told, by the way, but bad ones too. A key point made by several attendees was that firms must not be timid about discussing investments that didn’t do so well and why. Better to be open and honest about an investment that has sunk – explaining the reasons why – rather than have no comment and allow others to build the story for you.
Guy Hands was very candid about what went wrong with EMI, for example, and LPs on the whole respect that candour. There’s an understandable reluctance to air dirty laundry, but firms that are prepared to be open about their failures, as well as their successes, are generally the firms that have demonstrated an ability to learn from their mistakes. That goes a long way with an already sceptical public as well as with LPs, who are well aware that for every home run, there’ll be a strike out or two.
This also connects with a – though some would say, the – defining characteristic of this asset class: it's a people business. The relationship between the GP and the LP is shaped by the dialogue that exists between a handful of individuals: making sure that dialogue is animated, personal and honest takes more than a stack of spreadsheets.
An eminent novelist said: “Those who do not have power over the story that dominates their lives, the power to retell it, rethink it, deconstruct it, joke about it, and change it as times change, truly are powerless, because they cannot think new thoughts.”
Don't expect people to look for – or find – that in your slideshow.
P.S. That author was Salman Rushdie. Go figure.