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Strengthening relationships and hitting hard-caps in the new normal

Q&A with Cameron Nicol, Marketing Director, eVestment Private Markets…

Q&A with Cameron Nicol, Marketing Director, eVestment Private Markets…

Which elements of the GP-LP relationship have been most impacted by the pandemic, both in a positive and negative way?

The most tangible positive, I think, is that five people no longer need to get on a plane, travel to the other side of the country (or world), and spend hours in transit and expand their carbon footprint just to close on a commitment.

As highlighted in the year-end edition of our Private Markets Monthly Monitor report, pension plan LPs actually reported 20 per cent more commitments (by dollar amount) to private equity in 2020 than in 2019. By necessity, virtual fundraising can be done and the realisation that it can streamline much of how the industry operates while at the same time reducing its environmental impact means it is here to stay in some form. 

A negative has been that the majority of LP commitments have gone to existing managers, without the availability of onsite due diligence. This has put a lot of strain on emerging managers in particular.

Do LPs have additional or new reporting and data needs in this environment? How are GPs servicing these needs?

I’m sure many GPs look back at the start of 2020 and are reminded of their stresses and trepidation. Almost overnight, there was an influx of requests from LPs for insight on the exposure of funds to specific sectors or geographies, and the performance impact of nationwide shutdowns, travel bans, etc. This persisted through the year.

The best GPs were able to provide their investors with an early, high-level view of fund performance and exposure, and not make them wait until long after quarter-end. This was one of the main reasons we accelerated the release of our custom performance report builder in our portfolio intelligence tool, TopQ. Knowing that unstandardised requests across their LP base can be a huge time-drag, and the importance of delivering information quickly but accurately, this new functionality enables GPs to populate custom templates with their latest performance at the click of a button.

The volatility also created a need for GPs to not only provide a static, point-in-time view of their funds and deal performance to LPs. Instead, LPs and GPs alike need clear insight into the biggest movements from one period to the next, whether quarter-to-quarter or over longer time frames, and what are the underlying factors driving changes.

The challenge has always been in being able to carry out this analysis efficiently and accurately. The data required to show this can often be confined to a spreadsheet-driven process and consequently unwieldy to produce. The Multi-Period Analysis module in TopQ has helped our GP clients easily get insights on the evolution of NAVs, IRRs and other deal attributes over time, see the impact of market movements versus deal-specific movements, and more, to give true insight to investors and internal teams. 

What are the tools and solutions available to help GPs raise assets? How can they differentiate themselves in a virtual world?

The good news for GPs is that they have more at their disposal than ever before! In recent years, the ecosystem of tools and technology created for the private markets has exploded.

For raising capital specifically, GPs combining market and portfolio intelligence are equipping themselves with the efficiencies and insights required for powerful positioning and relevant differentiation. 

Our most effective clients aren’t trying to differentiate from the market in an information silo. Or rolling out the same fund pitch regardless of investor. They are turning data into insights to create persuasive positioning.

Using our platform GPs know how and why their investors are committing to specific strategies and funds, how those groups pitched and presented themselves, and then turning the due diligence lens on themselves: using portfolio intelligence tools to translate returns data into evidence of their strengths and key points of differentiation. 

This goes beyond quartile benchmarking, too. What is more powerful is using deeper analytics to evidence your value creation skills, the team’s capital preservation capabilities, or how your recent shift to sector specialism outperforms previous generalist funds in your series.

Are LPs making use of any new solutions and services to help them conduct virtual due diligence exercises? Are the days of the traditional process over for good? What elements of the current set up will be retained post-pandemic?

Obviously face-to-face has long been a part in LPs’ decision-making processes. For the most part, they are committing to a blind pool and on the basis of trust. Conducting diligence in-person helped them to understand team dynamics and more. What we’re seeing, is more of our LPs clients bringing quantitative analysis into their due diligence process much earlier, and using it more often throughout, to help underwrite investments.

By doing more analysis on GP performance at the beginning, which can include applying quantitative analysis of the qualitative (i.e. team), they are uncovering the real questions and red flags they need to ask when they “meet.” At the end of the day, due diligence is about asking the right questions of a GP. The data by no means replaces the qualitative aspect of due diligence, but it does enhance it. 

Of course, this was always best practice pre-2020, and will certainly be retained post-pandemic. No LP will reduce the amount of data or information they ask for from GPs just because they can have a face-to-face meeting. GPs need to be prepared for this new approach by LPs.

Has the current environment driven more PE firms to use platforms and third parties to support them in reaching new investors? What are the pros and cons of doing this and how can they be selective in this regard?

Absolutely. GPs and LPs can’t meet and uncover new opportunities via events and networking in quite the same way they used to before. 

For GPs it hammers home the need to 1) be present in the places LPs are looking (databases) and 2) be able to find the right investors for their funds.

To the second point, there are plenty of market databases available for GPs’ investor research. What they need to consider is how actionable the information presented in them really is to determine whether an investor is a good fit. Is it “data” or is it “intelligence”?

Using market intelligence platforms, like eVestment Market Lens, has huge advantages over more traditional market databases. Knowing “what” investors have done is useful, of course, but it is less actionable. And that’s where market databases’ value stops. Market intelligence platforms provide deeper insight on the “why” behind certain decisions about asset allocation changes or even commitments to them and their peers, as well as the more forward-looking “how”: How might an investor shift their commitment pacing in the future? How is the advice of their consultant altering their appetite for a fund like ours? This is where the true value lies for GPs when looking to find, reach, and win commitments from investors. 

Cameron Nicol, Marketing Director, eVestment Private Markets
Cameron Nicol is the Marketing Director for eVestment Private Markets where he oversees marketing strategy, communications and content, working closely with sales, client success and product to identify and construct valuable insights and interactions for the industry. Cameron joined eVestment in 2015 after its acquisition of TopQ Software Ltd, a provider of SaaS-based track record analytics solutions, where he was an early employee.

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