PEI IR Forum: First-time funds, avoid GP stakes

Investor relations pros shared some unique strategies for raising a first-time fund at PEI’s Investor Relations, Marketing & Communications Forum this week.

First-time managers will be better placed raising capital on their own than giving up a minority stake in their business to a GP stakes investor, a panel heard at Private Equity International’s Investor Relations, Marketing & Communications Forum this week.

“That’s a hard bell to un-ring. Investors for future funds really don’t like it,” said one investor relations and communications professional at a US-based mid-market firm. “If you can avoid it, don’t do it.”

Selling a minority stake in your firm to a GP stakes buyer can make things “a little difficult to manage as things go on”, said another panellist, who added that their firm had been approached by GP interest buyers – something the firm did not need.

Panellists also shared strategies and pointers for first-time managers, including setting out a goal to build an investor base that is scalable and reflective of the firm’s strategy.

“You want to make a balance of investors who will continue to re-up, providing your performance and commitment to them is steady…and remain relevant, meaningful and differentiated with some of the larger global players who can really scale with you over time,” the IR and communications professional said.

“It’s not the fastest money you want. You want good partnerships.”

Likewise, the “storytelling” around raising the first-time fund is essential, according to the other panellist. “Investors will assess you in every way, shape or form and you won’t even know it’s happening.”

LPs will be looking at subtleties and they will want to spend time with people at different levels of an organisation to see how those people are being treated, the panellist noted. “Never more so is culture more important in this generation.”

Track record attribution today compared with 10 to 15 years ago has also evolved, according to the panellist.

“The involvement in a deal today, the progression of the LP base…they know who’s running the deal, they know who is involved and whether it’s truly attribution is up for discussion.”