Back in the heady days of 2006, fundraising was a relatively straightforward business. “Pre-crisis, there were a lot of placement teams whose model was effective and sustainable in a boom. They essentially threw a pitch out there, and if it stuck with a particular investor, great. If it didn’t, they’d just move on to the next one,” says one placement agent.
How times have changed. As more private equity firms return to market, queues of managers are now forming outside limited partner offices. Fundraising GPs are all too aware of this, and they also recognise that the process is becoming more and more complex given both macroeconomic and regulatory pressures on limited partners. Furthermore, LPs have a more differentiated understanding of how they want to participate in the asset class, and which types of – as well as how many – managers they want to work with. Long gone are the days of general partners being able to take a cavalier approach to their fundraise and, more broadly, to their investor relations.
In light of all this, successfully garnering commitments from reluctant or risk-averse investors is much harder. For many GPs, this means high-quality guidance and advice from competent and well staffed placement advisors can be all the more valuable. The trouble is that the current downturn has been taking its toll on the fund placement business as well. How many groups are as well equipped as they used to be to deliver on a fundraising mandate is an important question for managers to figure out.
Stability within a placement team clearly matters. There has always been a degree of churn in placement agents, but the downturn has increased staff turnover as firms seek to re-position themselves post-crisis and address gaps in their ranks. Park Hill, UBS and JPMorgan Cazenove are among the groups that have recently seen staff depart to found their own firms, but have also made new hires.
Fundraising is a relationship game, so for the incumbent providers any loss of key personnel will be keenly felt. There is also a resourcing issue – most agents we have spoken to recently said allocating resources to project management on a fundraise was increasingly important, as was having a global network able to tap geographically diverse pools of capital. This is costly, and a smaller group might find it hard to achieve those goals. That said, a nimble boutique with the necessary relationships can still be successful. Large, bank-affiliated teams are certainly not having it all their own way.
Remaining competitive in a shrinking market is a tough task for any agent, big or small. Not only must they hold on to all the skills and capabilities that effective fundraisers rely upon, but they must also choose their mandates carefully. For as one practitioners says, “you’re only as good as your last fundraise” – especially in a market as unforgiving as today’s.