AA Advisors' podcast solution keeps GP/LP communication open
“The greater the obstacle, the more glory in overcoming it.” - Molière
These are extraordinary times; a defining moment in our collective history. Covid-19 has forced over one billion of the world’s population into lockdown, and while many businesses are adjusting to remote working, the repercussions for non-human contact in a people-centric industry like private equity are significant.
Covid-19 has arguably accelerated the way we do business by a decade. Thanks to improvements in cloud-enabled technology, PE firms are continuing to do business as usual, with the likes of Zoom and Microsoft Team videoconferencing tools enabling employees to easily interact with one another.
Communication is key at a time like this, particularly for those PE firms who are in active fundraising mode. Cognisant of this, placement agents like London-based AA Advisors are developing digital solutions to support clients as they seek to maintain active dialogue with investors.
“We are currently in the process of recording a podcast series called Alternative Angles for our network of GPs and LPs across the world,” confirms Alexandra Daly (pictured), CEO of AA Advisors, which she founded in London in 2007.
“Each podcast aims to present the view of a GP or LP on the macro environment in light of coronavirus, what their thoughts are on its impact for future markets, and how they are managing their underlying portfolios to shine a light on what they are doing differently. The podcasts will feature guests representing a wide variety of strategies across alternatives including VC, PE and real estate GPs and hedge fund managers in the liquid space.
“Right now, people are hungry for information, but feel physically isolated due to Covid-19.”
Covid-19 certainly presents a unique obstacle for businesses to overcome and has pushed forward the rate of digital adoption; something that arguably private equity, as an asset class, has been slow to embrace relative to other industries.
In Daly’s view, using podcasts to communicate with LPs will be used by managers not only now, but over the long term. It is, she says, a way to streamline the introductory process and could be a more efficient way to raise capital.
“We want to help our clients speed up the fundraising process and make capital more accessible, from both the GP and LP side; and this could be a way to achieving that. It’s a great facilitator in my view. However, nothing beats looking into the whites of each other’s eyes, particularly when closing an investor allocation,” stresses Daly.
Anything that can aid managers, especially those operating in the middle-market where competition is intense, is going to be viewed virtuously. Moreover, in the early stages of LP interaction, digital communication means there is no operating cost to the GP; video conferencing is carbon neutral.
But what else should newer and emerging PE fund groups be thinking about in these uncertain times, to improve their fundraising chances?
Daly offers a few tips:
“Firstly, GPs need to have a strong, structured team and also a stable, resilient risk management division. LPs will always be interested to meet with a manager if they can recognise excellent deal-flow and see value to opportunities through a strategic relationship or if they operate in a part of the market that is undervalued and under-serviced.
“Secondly, for first-time managers, being able to focus on your pedigree and any track record you’ve had in the past is vital; ie demonstrate historically what deals you worked on and why you know feel this is the right time to run your own fund.
“Thirdly, some investors want to play a greater role in the partnership and therefore aren’t as attracted to bigger funds, preferring instead smaller and mid-sized GPs in order to get more of a strategic value-add. It’s always good to consider different views in a strategic value-add relationship; not pandering to LPs such as family offices, but tapping in to their entrepreneurial skillset.”
For those who are fundraising for Fund I or Fund II, it is worth mapping out relationships with large institutions as early as possible; ideally, as close to launching the business as possible. That will allow institutions to track the manager’s progress in the early years, and if all goes well, and the manager has reached a good AUM, they might be ready to invest in Fund III.
“You want to plant your flag in the ground and say ‘We are here, and this is what we are doing. We know you’re not going to invest with us straightaway but we want to share our development with you along the way’. Then, you are assisting LPs. You’re inviting them to chart your progress.
“We actively encourage this approach with our clients. We are strategic and diligent about mapping our LP base with our GP base. Fundamentally, we make sure we always position GPs with what LPs want. We know what investors want and the managers we work with must fit that criteria,” explains Daly.
Marketing a new fund can be a bit of a minefield for first time managers. There is no blueprint on how best to go about it. The key, says Daly, is to focus one’s efforts “on pitching to the right LPs”.
She says that all too often, managers waste valuable fundraising time because they don’t have the right information at their fingertips. “Understand what LPs are going to be interested in and be true to your strategy. Don’t dilute it by style drift or moving into areas of the market where you don’t have expertise,” advises Daly.
Different investors need different information presented to them. Managers are advised to be structured and selective with the marketing materials they send out. Have one short-form version that summarises the strategy in two pages and a separate eight to 10-page presentation that goes into more detail.
Every year placement agents receive hundreds of requests from GPs to assist them in their fundraising and distribution efforts. Last year, AA Advisors looked at approximately 500 fund managers and ended up working with 20.
“We won’t take on a GP unless we are certain we can place them. We spend time understanding their portfolio management to match themes from GP to LP; we look at the manager’s investment criteria, risk management and monitoring systems and we also do a deep dive on the fund partners’ background and pedigree.
“It’s a very detailed approach based on a scoring system. We are formulaic in our approach and we find this is the best way to identify the right GPs to successfully place,” explains Daly.
She says that ESG investing is a major driver for the firm:
“We are trying to shine a spotlight on managers who have an ESG and socially responsible filter to their strategies, as well as those who are running dedicated ESG strategies in their own right.”
One final tip for new fund managers is to think about having a female in a senior position within the firm, and how they might incorporate an ESG or socially responsible investment filter into the strategy. Of particular import, however, is ensuring managers can measure their impact.
This can’t be something that is simply sugar coated to attract investors.
“LPs are no fools. They understand ESG criteria and they will ask pointed questions around how you measure impact investing; make sure you can measure, monitor and prove what you’re doing,” concludes Daly.