In a brave, new fundraising environment, fortune is favouring those who can adapt to embrace new approaches. From investing in the latest technologies to enhance virtual communications, to proactively building upon existing relationships, read on to find out how GPs can seize the opportunities a hybrid fundraising environment has to offer.
When Covid-19 sent the entire business community home, private equity firms had to adapt to a new operational model, doubling down on existing relationships and embracing new technologies to get more out of them. They invested in digital, video and virtual platforms to maintain investor engagement, make new connections and hit fundraising targets.
After a period of adjustment, formerly globetrotting GPs found their feet on virtual ground. Those that were able to regain traction most quickly invested in technology to facilitate a smooth transition to a remote operating model. Despite the disruption, performance did not suffer.
According to McKinsey Global Private Markets Review 2021, private equity outpaced other private markets asset classes and most measures of comparable public market returns. Clearly, what some may have thought were temporary necessities of the virtual world have made a strong case for staying on long after social distancing and travel restrictions are lifted.
In an industry all about relationships, a hybrid model – of both virtual and face-to-face – is likely to embed itself as the new fundraising norm. While this may streamline certain components of fundraising, care is necessary to plot a new path to convey differentiation and forge enduring relationships. Below are some simple guidelines that will position GPs to adapt to this changing environment.
Build an ecosystem of technology vendors
The pandemic has opened up an array of digital opportunities for GPs. New and interesting platforms are popping up to automate workflow processes, analyse huge data sets and boost operational efficiencies. These capabilities in the not-too-distant future will also allow fund managers to seamlessly open up their products to new pools of capital and manage investors at scale.
GPs should have a clear idea of their data strategy and the challenges they’ll face. A seamless digital journey – from onboarding to reporting – can help differentiate GPs among fund investors.
When communicating over new mediums, these considerations are no less important. Whether working from home or the office, workspaces should be kitted out with premium technology, high-speed connectivity and smart design. This may involve larger, higher-quality screens, voice-tracking cameras (that follow the speaker) or other tools to limit background noise and avoid technical disruptions.
Prepare for virtual meetings
Make sure the technology works. Teams should prepare as thoroughly as they would for a traditional business trip. Invest time in dress rehearsals to gain comfort presenting online, and leverage tools to encourage interaction and build trust, such as screen sharing to give LPs behind-the-scenes-access.
Practising together will help facilitate a natural flow of discussion and avoid interruptions. Furthermore, it will empower younger or more junior staff to highlight the calibre of the larger team.
Make yourself seen and heard
Be proactive in building and maintaining reputations, whether that’s through public speaking roles (virtually or in-person), sharing insights on industry trends, or pursuing PR to position firm professionals as industry thought leaders.
Simply attending industry events must not be underestimated as a networking tool to reconnect with peers and make new connections. Bear in mind that for many, meeting people on the conference circuit will be their only networking interactions the whole year. Not to mention, people have missed the handshakes and natural conversations that an in-person meeting cultivates, so the opportunity to leave a good and fruitful impression is ripe.
GPs must use a wide spectrum of channels to showcase their value add to target audiences and relay consistent, controlled messaging to all stakeholders. Fund managers are spending more on social content programs, leveraging platforms like LinkedIn, Twitter and YouTube to amplify their message, fulfil the commercial potential of thought leadership and deepen their referral networks.
Keep the conversation going
Despite the challenges of limited travel, firms are actually raising funds faster, more often and more efficiently than ever. PitchBook analysts predict that 2021 fundraising will surpass $330 billion, setting an all-time high as institutional investors allocate more to alternatives and GPs continue to diversify their strategies and product offering. This means it is critical that managers nurture investor relations through constant communications, rather than just in the lead-up to and during the fundraising cycle.
One of the silver linings of Covid is that private equity is no longer the opaque industry it once was. The virtual environment has pushed GPs to increase transparency and dialogue to keep investors engaged. According to Coller Capital's 2020 Global Private Equity Barometer, 82% of LPs were satisfied with their GPs' communications and transparency efforts, up significantly from a low of 39% in 2012.
Ultimately, the private equity industry is a people business and it is highly unlikely that fundraising and broader GP-LP communication will go fully virtual. There is no replacement for the value of an in-person meeting in building long-term relationships. However, if the past couple of years are anything to go by, GPs must embrace digital transformation – an industry trend that was already developing but has just been accelerated by the pandemic. This will help ensure sponsors can build resilience and flourish in a virtual future.
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With thanks to BackBay Communications for their contribution to this article.