@PrivateEquityLP: Made 4x on exit! #homerun, #champagne

For an industry that prides itself on being both progressive and adaptable, private equity has been slow to embrace social media in a bid to create and manage brand awareness.

According to a report published this week by PR and marketing firm BackBay Communications, private equity executives are sold on the need to engage more actively in how their firms’ brands are created and perceived: just one percent of the 256 respondents felt branding was unimportant.

Likewise, the survey’s participants could readily identify the target groups who mattered most when it came to brand-building: LPs and the chief executives of target companies, ahead of lenders, investment bankers and then – somewhat surprisingly – the firm’s own employees (both current and potential).

Those two key target groups are obvious cornerstones to any successful and enduring GP group: the first in terms of fundraising and the second in terms of investing.  While no-one is suggesting LPs will make commitment decisions based solely on a slick pitchbook or a polished advertising campaign, few would argue with the proposition that intelligent and effective brand work can swing a decision in a firm’s favour where investment performance is similar to that of one’s peers.

Echoing the famous “you won’t get fired for buying IBM” mantra, Tycho Sneyers of fund of funds manager LGT Capital Partners said in the report: “It is difficult for the less sophisticated private equity investor to assess GPs. In these cases if you pick one of the big brands, you won’t be fired for it as a pension fund manager.”

Importance
of branding

On the deal side, being a brand name can help too. Jacques Callaghan, head of private equity coverage at M&A advisory group Hawkpoint, said in the report that, “A recognizable brand will help GPs get their foot in the door. [With a better known brand] you don’t have to explain who you are and, more importantly, you get your calls returned.”

So having a strong brand helps you raise capital and then deploy it, but how should a private equity firm go about developing such an identity? Many respondents seemed to have only half thought this process through.

Almost three quarters said the best way to build their brand was to “achieve strong portfolio company returns”. That’s fine, but how will people outside the firm hear about those great multiples? A little over half the respondents said they planned to increase investment in marketing materials and their websites; 41 percent said they would up their spend on PR, and 53 percent planned to beef up their investor relations unit. Others planned to increase spending on advertising (music to a publisher’s ears).

Tellingly, though, social media barely registered as a means currently employed to help shape a firm’s branding. With a few notable exceptions – including Permira (@PermiraNews) and The Blackstone Group (@Blackstone) – GPs are resolutely silent in the twittersphere and unseen amongst the Facebook throng.

Although most would not commend the creation of a “I [heart] KKR” Facebook group, nor suggest that Stephen Schwarzman needs to be tweeting daily, there is nonetheless a noticeable vacancy within social media when it comes to private equity managers. And although it is tempting to suggest that many within the target demographic of LPs and CEOs have yet to embrace social media, the trend seems distinctly one-way. Better, therefore, to be in front of, rather than behind, this curve.

Social media – be it Facebook, twitter, LinkedIn or YouTube – offers a way to engage with a broader range of people, and in a more immediate way than traditional channels. Think of all those public sector employees in California wanting to better understand what CalPERS is doing putting their retirement savings in private equity, or an employee at a portfolio company encouraged by the strong performance of a related business unit.

Some GP groups have already taken the plunge. Christopher Ullman, director of global communications at The Carlyle Group, said: “Many young people don’t necessarily get the newspaper every morning and read it the way people in their 40s and 50s do. They get their information in a variety of ways and we are figuring out how to tap into those vehicles.”

In an increasingly digital age, it makes sense for firms to explore new ways to communicate with both current and potential stakeholders. Social media can also help to humanise a firm, preventing it from being seen as a faceless corporate entity. In the ongoing battle to promote the industry’s positive effects on the economy and society generally, it makes sense to use every tool in the box. It will also help strengthen a firm’s brand in a world that no longer requires six degrees of separation. We’re all much closer than that.