Marriage guidance

The relationship between limited partners and general partners is like a marriage – so if a GP, as the husband, wants multiple wives, he better know how to take care of them.

This was the rather unusual analogy used by a speaker at PEI’s 2013 Investor Relations Forum in New York in June. Their point was that each LP has individual needs, and the GP needs to be aware of those needs and ready to handle them.

It was just one of the many analogies used at the conference to describe the relationship that lies at the very heart of the private equity industry. And while delegates spent a lot of time talking about how that relationship has changed, and about potential pitfalls and best practices, in the end it all came down to a simple notion: tend to the relationship.

For the IR professionals gathered in the room, this might sound fairly obvious, since they are engaged in this kind of work on a daily basis. But coming from LPs at the event, it was nonetheless a powerful message.

The relationship between limited partners and general partners is like a marriage — so if a GP, as the husband, wants multiple wives, he better know how to take care of them.

The best approach goes something like this, the LPs said. Get to know us before you start fundraising; years before, in fact. Don’t just visit when you want something. After we commit to you, talk to us on a regular basis, and not just when it’s obligatory. It’s like bringing your wife flowers, said one delegate: don’t just do it on Valentine’s Day, do it on a random Monday, just because it’s Monday.

Firms that successfully communicate with their LPs – i.e. those GPs that are viewed admiringly for the job they do tending to the relationship with their investors – are those that understand the concept of a “constant state of fundraising”.

This does not mean actually being out in the market trying to get people to sign cheques. It means having an ongoing dialogue with LPs – visiting in person when possible, but also calling and emailing – just to check in and keep them abreast of firm developments.

Speaking of analogies, at one stage the job of the IR professional was described as being similar to that of a field goal kicker on a US football team.

The kicker is not really a member of any specific group within the team: he’s not part of the defense, and on the offense, he doesn’t have to catch or run or block. And the kicker is not truly called upon to use his talents until the most significant part of the game – when a win or loss rests solely on his ability to kick the ball between the goalposts.

Christopher
Witkowsky

So it is with IR professionals, one delegate said. They’re not members of the deal team, but they’re also not part of the back office; and they’re really only called upon to use their talents at the most significant moment for their firm – fundraising.

It’s an amusing analogy. But it doesn’t tell the whole story. Because today’s private equity IR professional is not someone who only goes to work when it’s time to raise a fund. As the discussion of the GP/LP ‘marriage’ shows, LPs expect a lot of interaction with their GPs these days, and the IR executive’s role is one of ever-increasing contact with the investor base.

Fundraising in today’s environment starts well before any PPM is sent out to prospective investors. That’s why IR

Fundraising in today's environment starts well before any PPM is sent out to prospective investors.

teams are growing so big: firms need professionals who can handle the job of managing existing relationships, while also going out and signing up new LPs. But that process doesn’t happen overnight. It’s a gradual courtship, and one that involves calls and visits, then more calls and more visits (not to mention some great performance by the deal team).

And all the while this courtship of potential new LPs is going on, existing investors have myriad demands for information – which they want delivered in their preferred formats. Just building up internal systems that can handle requests like these can take up a lot of the IR professional’s time. Several delegates at the conference talked about walking into a new job at a firm, to find LP management systems so antiquated that they were not much better than filing cabinets.

Inevitably, the key word to emerge from the conference was communication. IR professionals must engage constantly with LPs to understand what they expect, and to make sure the firm is answering their concerns and acting as a true partner.

It works both ways, too. One delegate pointed out that IR professionals sometimes have to serve as advocates for LPs, especially those interested in co-investment opportunities. Dealmakers aren’t necessarily expected to know which LPs want co-invest, and so it falls on the IR professional who knows the LPs best to make sure their interests are well represented to the dealmakers.

Again and again, delegates pointed out the simple maxim: just be a good partner. Just like in a marriage, if you’re all in, and focused on making the other person as happy as possible, you’ve got a good chance of living happily ever after.