Managing expectations

Fund managers should keep a few things in mind as they face a surge in information requests from LPs, writes Kevin Ley.

If you’re a fund manager reading this, chances are you’ve recently been getting a lot of calls from limited partners that you barely heard from in the past. As market uncertainty continues, general partners should expect to deal with much more detailed queries from their investors, and may have to consider new ways of communicating with LPs.

Several private equity managers and CFOs have said they are getting requests for information such as cash projections and valuations ahead of when they would normally be reported, as well as for more granular information on portfolio companies. Adding to these heightened requests is the fact that limited partners expect managers to revert much more quickly than ever before.

Kevin Ley

While some managers may be uncomfortable divulging some of this information, or feel like they are being second-guessed by their LPs, the best thing they can do to maintain goodwill is to respond to inquiries quickly, be proactive in pushing out information before the calls come in and be as transparent and detailed as possible, especially when putting out year-end financials. Good statements are easily readable and provide clear write-ups on portfolio companies, milestones to date, objectives for the year, and so on.

Financial statements that mainly consist of a table with the name, date and amount invested lead to question marks for LPs. When there is a void of information, LPs usually assume the worst.

Meanwhile, although a good investor relations person is always an asset, on many of these more detailed requests LPs want to hear from a manager, and can get agitated if they can’t get answers from someone higher up. And while they try to accommodate such demands and reassure their investors, firms will also have to look at new ways of reaching out besides picking up the phone.

Several firms including Towerbrook Capital Partners, East Capital and Apax Partners have all recently held webcasts to respond to LP concerns, with such online methods becoming a popular way to demonstrate transparency and get the message out to as many investors as possible at once. However, LPs may still be wary about asking questions in an open forum, which is why allowing them to e-mail or type in inquiries anonymously is ideal to ensure full participation.

But whether the news is good or – in many cases nowadays – bad, managers will find it is better to make disclosures quickly and get ahead of the queries rather than sitting on information and being concerned LPs won’t understand. Controlling and shaping the conversation is especially important in this environment.