Side Letter: LPs’ emerging manager tips; PE’s D&I progress; VCs’ buyouts bite-back

LPs share five tips for succeeding as an emerging manager. Plus: The proportion of managers with a diversity and inclusion policy has jumped 10 percentage points in one year; and a venture capital firm wants to get into buyouts. Here's today's brief, for our valued subscribers only.

Just happened

Emerging managers: Need LP support (Source: Getty)

How to succeed as an emerging manager
So, you’re an emerging manager wanting to raise capital from LPs. What’s the best way to go about it, and what are the pitfalls to avoid? These were questions put to a panel of LPs who back emerging managers, speaking at the IPEM conference in Cannes last month. Here are their five tips:

Relationships, not products. “One thing you want to think about carefully is, what does the LP want?” said Tom Rotherham-Winqvist, managing director at Wafra. While some LPs just want access to segments of the market they don’t have exposure to, or the talent – or track record – a new firm can offer, others want a new kind of relationship. He added: “If you bring the same [way of thinking]: ‘LPs, just give us your money, go away, it’s our business’, you’re going to shut off a part of the market.”

Expertise helps. Some investors will back teams that have diverse professional backgrounds and who aren’t all necessarily former PE investors, said Sarah Stein, head of unit at the European Investment Fund. A team could include people with entrepreneurial or operational backgrounds, she added. For specialist strategies such as digitalisation, climate funds and energy transition, specific experience and knowledge are clearly needed, Stein said.

ROI vs ROT. LPs are always time-starved, and one reason they’re often reluctant to consider first-time funds is because it takes additional time to conduct due diligence. “Be really conscious of that,” said Rotherham-Winqvist. Emerging managers should do everything they can to make an efficient diligence by their LPs as easy as possible. For example, don’t just provide them with email addresses of references they can contact – provide them with questions they might want to ask. “It’s not just their capital, it’s their time that they’re thinking about.”

Give co-investments. The easiest way for an LP to get to know you is through co-invest, said Abhik Das, a partner at Atypical Partner. LPs can get to know a manager really well via a due diligence process on a co-investment; this is often the best way to catalyse relationships.

For LPs, figure out a team’s motivation. “You have this incredible mix of motivation, incentives, entrepreneurship [and] pipeline opportunities that have been pent up, that can all be released if LPs come together and partner for a new platform,” said James Roebuck, managing partner at Opera Investment Partners. Figuring out if some of these teams are simply looking to switch their funding sources can mitigate new platform establishment risk.

If you haven’t done so already, check out this database on emerging managers to watch from our colleagues at Buyouts (registration required).

On the way to the forum
Private Equity International‘s Carmela Mendoza and Madeleine Farman will be at our Investor Relations, Marketing & Communications Forum: Europe in London on Wednesday and Thursday this week. More than 200 attendees from leading fund managers across the private markets are expected across two days of networking for investor relations, fundraising, sales, marketing and communications professionals in Europe. If you’re at the event and keen to chat, they’d love to hear from you. More details here.

They did the math

D&I another day
A growing number of managers are incorporating diversity and inclusion considerations into their investment making. That’s according to a report from LGT Capital Partners, cited by our colleagues at New Private Markets (registration required). The proportion of managers with a D&I policy jumped from 50 percent to 60 percent over the past 12 months, while the proportion of managers that consider D&I in their investment decisions increased 3 percentage points to 51 percent. “While the pace of change in this particular area of ESG focus is not especially fast, we do see instructive examples of how managers are responding to the D&I challenge,” the report said.


Flipping the script
Venture capital firms have increasingly seen PE firms encroach on their territory in recent years. Now, veteran early-stage investor Bessemer Venture Partners is flipping the script with a newly raised buyout fund, our colleagues at Venture Capital Journal report (registration required). BVP Forge, which recently closed on $780 million with commitments from the likes of MetLife and StepStone, aims to commit $30 million to $125 million per transaction across majority and significant minority stakes in software and tech-enabled services companies based in North America, Europe, Australia and New Zealand. The fund is yet to make its first deal.

While giants like Insight PartnersBlackstone Growth and Tiger Global have poured billions into growth deals over the past few years, BVP Forge is investing in self-sustaining companies. “We’ve now offered something to CEOs and management teams that does not exist on the market today,” partner Rob Arditi said. “There is no other venture capital firm with a standalone private equity fund. So, as a CEO, you get all the benefits of a dedicated buyout fund, the dedicated value creation resources, total alignment, focused pattern recognition, depth – but layer on that all the benefits that Bessemer brings you. It’s very unique.”

Dig deeper

LP meetings. It’s Monday, so here are some LP meetings to watch out for this week.

6 October

Today’s letter was prepared by Alex Lynn with Adam Le and Tobias Waters