By Warren Hibbert, Managing Partner, Asante
In today’s frantic fundraising environment where investors (‘LPs’) are reviewing approximately 500-600 PPMs per annum, catching their attention, getting them to prioritise your fund and dedicating resource to work on it ahead of making a decision can seem like mission impossible. In today’s pressurised market, creating tangible momentum and achieving strong closes within defined timelines has never been more important. We continue to experience a bifurcated market where fundraising success is concentrated amongst a select few - most of whom the LP market is well aware of in advance and pounce on as soon as any signal is given of their pending launch.
By fundraising success, I mean those fundraises where the private equity fund manager (‘GP’) is able to achieve a close at or ideally in excess of their target within the timeframe they’d initially planned. The fact that many GPs battle to reach fundraising success and instead find themselves bending over backwards to simply get LPs to take a meeting, would indicate a market where few have read the signs and adapted – from a fund evolution and performance perspective as well as a marketing one.
In most situations there is no obligation for the LPs to act and make a decision and hence most end up sitting on the fence and watching the fundraising develop (or not). The problem is there remains significant herd behaviour in the market – both on the positive and negative ends of the sentiment barometer. As a result it soon becomes apparent to the market which funds are going to be successful and which are unlikely to be successful and much of this can still be influenced by how a fund is positioned in the market place. To avoid fundraising stagnation and ultimately a failed fundraising where the GP raises a sub-optimal, or worse an unsustainable fund well beneath target, unless someone grabs the process by the scruff of the neck and drives a close which enables the GP to complete a deal or two, demonstrate their position in the market and create scarcity.
There are various ways to drive momentum and scarcity some of which include:
- Create a tangible deadline beyond the GPs influence – i.e. a first deal for the fund that would require the fund to close and draw down or risk losing it;
- Build a solid first close base and implement a rolling close that achieves smaller closes but on a frequent monthly basis rather than waiting for others to aggregate for a larger close at a later date (that is likely to end up slipping);
- Invite select key large LPs to co-invest alongside GP ahead of a close, but with a staple to a primary commitment;
- Offer a first close incentive - but you need investors that genuinely want to commit – remember a first close incentive will only influence timeline and NOT the decision to commit/invest
- Stapled secondary – prior fund investors that are not able to or interested in re-upping may be interested in selling their existing exposure (although beware it’s never a good sign and rare that new LPs consider a stapled transaction unless the secondary element is priced to the point where they’ve giving it away for free!)Fundraising is an art not a science and its crucial the GP is doing all they can to keep the LP interested as other priorities compete for the investors’ time.There are various things a GP can do to attract LPs and ensure momentum develops with efficiency. I’ve listed some examples below, but the list goes on!
- ensure a detailed diligence data room is available;
- Encourage on-site due diligence meetings as early as possible – exposes the LP to the team and develops a rapport with the individuals;
- Constant stream of touch-points on developments in the industry(s) in which the firm invests as well as the team and portfolio;
- Get a many of the team involved in LP meetings as reasonable - the more of the team the LP is exposed to, the more you're effectively completing a significant part of their team assessment for them in parallel;
- Maintain complete transparency with the LPs throughout and always – this can be hard with difficult portfolio or team developments, but is ultimately rewarded with a set of LPs who trust you and more so a bulletproof reputation;
- Make sure you're continually speaking to the level of momentum developing in the process;
- make sure there is always activity - new developments/initiatives at portfolio companies, new deals (important) exits (more important!), new hires, activity - shows a group that is moving and that's important - never stand still;
- Be careful on term negotiations - fight for commercially key points and don't get bogged down by smaller legal issues;At Asante we believe excellence demands knowing more about our fund managers, their strategies, their strengths and weaknesses and their investing environment than the market and using that knowledge most effectively to engage the global investor universe, ultimately leading to successful fundraisings. Since inception in 2011, we’ve held six final closings, five of which have been oversubscribed at their hard-caps. A final word of advice, don’t get too focused on your hard-cap – if you plan ahead and execute with precision, you’ll hit your target comfortably and the hard-cap will follow, but of course at that point we’re dealing with a high quality problem!
Warren is an experienced private equity advisor, fundraising ,specialist and entrepreneur. At Asante, Warren manages a number of the firm’s global fundraisings and maintains relationships with investors throughout Europe, North America, the Middle East and Asia. Prior to co‑founding Asante, Warren spent seven years with MVision Private Equity Advisors where he was a Senior Partner.
You can read the other articles from Ipes' Private Equity update (edition 15) at the following links: