2022 will be the year the level of in-person and online meetings rebalance to create a new fundraising ‘normal’ for years to come…
The private market fundraising process underwent a historic transformation through the various stages of Covid-19, but many of the adjustments made during 2020 and 2021 are now being reviewed by GPs and LPs as travel restrictions and lockdowns ease in the UK, Europe and the US.
In 2020 fund managers relied mainly on existing relationships to raise and close funds virtually. Last year saw a shift back to engaging with new clients.
“In 2021, the situation largely didn’t change, but we had to meet new managers and find new ideas,” says Kevin O’Donnell, global head of investment relations, Adams Street Partners. “And by doing so online, we raised double what we had in 2020, and it was a record year for the firm.”
Over the past two years, LPs have been under pressure to allocate to existing GPs that have performed very well. There has been skepticism around investing in new managers virtually.
According to the SS&C Intralinks 2022 LP Survey, last year only one-in-five LPs said that they would be happy to consider investing in a fund manager they’ve only ever met virtually, highlighting the confidence LPs have in virtual conferencing and due diligence.
Virtual virtues
However, though virtual fundraising has been challenging, networking and pre-marketing was successful across some regions, particularly Northern Europe and parts of the US.
“I think you could do a lot of relationship building in the first lockdown,” says a European GP.
Larger fund managers with a more developed technology offering platform have been better positioned than others to take advantage here.
The Brackendale Private Equity Corporate Identity LP Sentiment Survey H2 2021 found that 69 per cent of LPs said they would be somewhat discouraged from making an investment in a private equity fund if it had a sub-standard website. Of this 69 per cent, nearly a fifth went as far as to say they would be entirely discouraged.
When LPs were asked by Intralinks how satisfied they were with the technology capabilities of their GPs, only 20 per cent were ‘very satisfied’, showing the gap most fund managers still need to cross.
According to Jessie Juan, partner and co-founder at technology company Quantium: “Today’s LPs are far less tolerant of time lags when they request data, driven by the current climate where international instabilities and sudden regulatory changes can significantly impact decision-making.”
“GPs are getting greater access to potential LPs because of increasing access and comfort with video conferencing,” says Steven Okun, CEO, APAC Advisors. “Those GPs that are best adapting to the virtual world have a great advantage in the competition for capital. Any GP that has not had professional training on how best to communicate and present virtually will be disadvantaged.”
The jump from phone calls to Zoom meetings has been fairly simple for most firms, but tech literacy is an evolving process, say LP consultants.
“Industry appetite for technology investment is strong, with encouraging spend trends indicating high intent to implement digital solutions,” says Juan.
Air miles
As well as the reduction in carbon emissions from higher air miles, a GP’s online marketing and communications can provide LPs confidence in the level of reliability and professionalism that a fund could offer to their clients, and a certainty that GPs are focused on their investors.
According to the Brackendale survey, 88 per cent of LPs said that, even if a private equity fund was producing strong returns, it would matter to them if it had badly designed or poorly written investor marketing materials.
It’s clear that progress still needs to be made on this front, but it’s also evident that virtual fundraising can only work efficiently up to a certain point.
Given the private equity market’s history of big personalities and corporate hospitality, hosting Q&As and larger conference-style events over the internet is difficult, say O’Donnell and Jonathan Parker, managing director, Redington. It can restrict the openness of the conversation, cap charisma and prevent personalities from coming across well.
In the fundraising war, charisma and technology will increasingly be seen as equally powerful weapons.
“GPs are going to have to invest in the technology and skills that will be able to meet the demands for hybrid fundraising, as well as for having hybrid LP meetings,” says Okun.
Read the rest of the Future flows: The next generation of private equity LPs Insight Report
