Story of the Year: Private equity works from home

Private equity embraced remote working this year, though its long-term impact on the industry gives some a cause for concern.

The reality of covid-19 dawned slowly, then very quickly. In the space of a week in March, KKR and Bain Capital closed their London offices, and HarbourVest Partners, Carlyle Group and Blackstone banned non-essential travel, the start of a mass migration to home working.

During lockdown, Private Equity International spoke to many executives exhausted at having to play teacher to their children while dealing with the most volatile economic environment in a decade. At the same time, the benefits became quickly apparent to many.

“It’s not ideal, but now that I’m doing it, it’s sort of making me think twice about all the travel we do every year,” said one LP in March. “Videos aren’t great, but they’re so efficient.”

Fundraising delays

In the early days of the crisis, placement agents advised those that were on the verge of kicking off fundraising to pull back. For those that did push ahead there was a clear flight to familiarity, to the detriment of new general partners and novel strategies: “Many LPs are focusing on larger, brand-name firms and/or just re-upping with existing GPs,” said Karl Adam, managing director at placement firm Monument Group.

Annual general meetings moved online. Some firms managed to carry out completely virtual fundraises, including UK technology investor Tenzing, which collected £400 million ($543 million; €444 million) in nine weeks. The firm conducted 40 virtual onsites over the course of one month, at one point holding four in a single day. It acknowledged that the process would have been trickier had it not met the LPs at least once before in person.

The firm’s client services head, Liv Simpson, wrote in a September guest commentary: “In one way, video conferencing brings a more informal feel to a meeting by blurring the lines of work and home life … However, this informality can also mean that less weight is attached to an in-process meeting. It is far more difficult to engage with others when you are speaking over video rather than across a meeting room, and impossible to build the same rapport.”

Groups such as Actis used technology to bridge the gap with investors, using drone footage, with a helpful voiceover, to show LPs in its energy fund where their commitments were being invested. One Asian GP even used a robot to give virtual tours of its offices.

Most market participants PEI speaks to are itching to re-establish human contact. Still, some fear that the period of remote working has already transformed the character of the private equity industry, and not for the better.

“One thing I would worry about is the removal of private equity from a hand-selling, character-driven, relationship business to a ‘what are your returns’ [business],” a senior IR executive at a US-based firm said.