Pfm: With the recent trend among LPs to consolidate their GP relationships, how do you ensure that LPs continue working with Carlyle?
Arpey: You have to do more listening than talking. LPs are looking to get more out of the GP/LP relationship than just commitments, and they’re thinking holistically. It’s not just that they’d like more co-investment, it’s beyond that – they’re looking for information, they’re looking at thought leadership, and they’re looking to have a partner. One of the best ways to ensure that we’re relevant is that we’re in touch with our limited partners and we understand what their needs are. What we do is germane to what LPs tell us they need and want. The best way to measure that is to look at what you offered and ask, did people consume it? Did they commit to these funds? If you’re not listening well, you may be offering opportunities they don’t want to buy.
The other aspect is that you have to execute. Carlyle has done a very good job generating realizations through a variety of cycles. LPs see that across our platform and view Carlyle as a core holding for them. LPs working with fewer managers plays out for us, because they take comfort in the quality of Carlyle and also can be tactical in how it is that they deploy capital with us. We give them choices; we don’t have a one-size-fits-all approach. If they want to allocate specifically to Europe, or specifically to small-cap in Asia, we have that. That winds up being very helpful to clients thinking holistically about their portfolios.
What is your approach to investor communications, and how are you handling investors’ increased reporting demands?
We’re in very regular communication with our LPs, whether that’s in person during site visits or conferences; over the phone, one-on-one, or in calls with multiple investors; and through web-based portals that LPs use to access and slice and dice information. We’re also using our external affairs folks to do podcasts and research reports and increase communications with regards to events in the market. It’s multifaceted in terms of how we communicate but the expectation is to be high-touch, and we’re responding that way.
And it’s not just our IR people who are reaching out. The people managing the money are in touch as well. After wrapping up our large cap European fund, Carlyle Europe Partners IV, this summer, two of the fund’s managing directors went out to Asia to sit down with some of their investors just to catch them up on what’s going on in the European market. Moments like that are important. We can’t forget whose money it is.
Looking back on Carlyle’s recent fundraisings, what’s the biggest shift you’ve seen in the GP/LP relationship?
More emphasis is being placed on the word “partnership.” When people talk about general partners sometimes the word “partner” gets lost in the process. Overarching everything, LP and GP interests are converging and there’s a real partnership mentality taking hold, whether that means greater alignment of interest or more mutuality around information and thought sharing. The years of the “presidential cycle” in investor relations – only seeing people every four years when you’re trying to raise money – is over. If people take that approach, they do so at their own peril. If you’re not in communication with your LPs, someone else will be. The emphasis has to be around the partnership, and that’s where we live.
This article appeared in pfm’s The Modern Fundraiser magazine, published January 2016.