Professionals from across the private equity industry outlined the evolving parameters of the dialogue between managers and investors during Private Equity International‘s latest investor relations forum.
Firms including Blackstone, BC Partners, Battery Ventures, Castlelake, StepStone Group participated in the annual Investor Relations, Marketing & Communications Global Forum held on Thursday and Friday.
Across several panels, IR professionals, consultants and LPs discussed the ways in which the changing macroeconomic backdrop informs their approach to investor communication.
Here are three key takeaways:
What do LPs care about?
Limited partners want unique consideration from GPs looking to earn their commitments.
One LP said on a panel that his firm is backing fewer managers every year and spends more time with them, especially in the years leading up to a commitment.
LPs track managers over multiple years, and rather than being “enamoured” by a first pitch, it is important to see a GP execute against the value-creation story it communicates to prospective investors, he added.
The first meeting still matters, of course. This is an opportunity for a manager to present its differentiators and how the firm creates sustainable competitive advantage. This is particularly important given how robust performance is across the market, the LP said.
It is also important to tailor meetings to an LP’s considerations and questions. Re-hashing the basic pitch in subsequent meetings lends an impression that homework has gone undone, according to the LP.
“When you’re telling a GP story, listening is critical,” added an in-house head of IR. “You want to try to deliver something really tailored.”
Virtual AGM will continue
Panellists noted that in-person general meetings will remain challenging in the near term.
One said his firm had been hoping to put on a live event at the end of October, and decided to hold it virtually following LP feedback. Many LPs would have been unable to make the trip, the panellist added.
Despite optimism earlier this year, a lot of firms “are turning to virtual”, according to another panellist, adding that it is still a question mark for the first half of next year.
Relationship-driven events, such as dinners, small investor meetings and hybrid live/virtual events, will likely come into favour with larger presentations for data delivery, she added.
The virtual AGM does have advantages, both for LPs and managers, panellists noted. Investors can include more team members than would traditionally be able to attend, particularly junior ones, while lightening the logistical and cost burdens typically associated with travel. Managers benefit because they can present a more polished product, smoothing out the inevitable hiccups of a live event.
However, investors, like so many, are becoming fatigued with Zoom rooms, according to the same panellist. It is important not to have meetings “just for the sake of them”, she added.
A third panellist, a service provider who facilitates online AGMs, said that in the early days of the pandemic, GPs were simply replicating their in-person meetings online. These days, they are thinking harder about what they are sharing and how they are sharing it, he added.
“This is an opportunity to engage and entertain investors,” he said, adding that the ideal length of such AGMs is usually 2-3 hours.
“Think about what you as a human would want to endure,” he added.
Real data crucial for ESG
Managers will need to be careful about how they communicate with investors, with particular attention on greenwashing – the practice of overstating or fabricating ESG metrics to mislead investors.
The “lack of consistent standards” across the industry is still a hurdle, according to one ESG consultant panellist, who highlighted the abundance of third party providers attempting to consolidate the various measures.
Because of the regulatory uncertainty, GPs must “think carefully about every statement”, according to another panellist who is an in-house IR professional. In a phrase: “be conservative”, she said.
It will be critical to back up statements made to investors with real data. The panellist counselled other managers to document their processes, particularly “the how” of how they will achieve any ambitions.
The industry will ultimately “do very well” from an ESG perspective, she added, because sustainability considerations will make companies stronger.