Investment Relations

Ok, so this one is going to be a private equity related blog, so all my friends call go back to sleep...

I was thinking yesterday that there's a role that many larger LP's, especially people who are particularly focused on access or co-investments, need to carve out and put a person on. While most groups have a INVESTOR Relations person, no one seems to be filling the role of INVESTMENT Relations person. The primary job of a partner at a firm, in my opinion, should be investment screening and decision making. However, in a world where tons of money is being thrown at the asset class and access is an issue for some, there seems to be a need for someone in the group to focus on marketing themselves to GPs, as opposed to LPs. Now, sometimes that role isn't necessarily marketing, its just managing the role of being a good, value added LP. Like, for example, yesterday I was on an advisory call for Ignition Partners. It turns out that one of their new projects is a perfect fit for another firm that we're looking at, and there's a partner at that firm that has extensive experience in the space, not to mention a geographic proximity to the entrepreneur. I asked the Ignition guys if they were talking with this other group, and they weren't, buy they were interested in the introduction. I made the introduction, and their entrepreneur will be visiting with this other GP soon. Points to GM for actually having something valuable to add to their investment process! (as opposed to just playing the usual LP role of beating the GP up about fees) I got to thinking, and there are tons of ways LPs can form great relationships with GPs. One other area I think is key is just the regular communication. One of the things we'd like to institute here is to do regular calls with our GPs regarding particular sectors of expertise, what companies they've done in an area, what opportunities their looking at, and what their strategy is--in addition to hearing a little bit about which partners are focusing on it. Of course, we regularly keep in touch with our GPs, especially with regard to co-investing, but not necessarily around more formal reviews of different sectors. Sometimes, just being a well informed, knowledgeable LP is being value added. This way, when fundraising time comes around, you don't need to reinvent the wheel, and you know the spaces, the strategies and the partners all very well.

Some LPs have other aspects that make them a value added LP. We try to maintain a connection to the GM IT group in Detroit and help our investments leverage off of good introductions--as you can imagine, navigating the GM infrastructure for purchasing on the IT side can be a nightmare. We have helped make introductions to the right people before, but admittedly, you can never do that kind of thing at the expense of the time you should be spending making good investment decisions. Yet, it does give you a lot of intangible value to a GP, which helps on the co-invest and allocation side.

Upfront access makes this an issue, too. Its not just about being a value added LP when you're in the fund, but getting into a fund in the first place is even more important. How long will it be before LPs start hiring placement agents to start placing them into funds? Its nice to have the luxury of being at a firm that has been investing in private equity for 25 years, but for new entrants, its going to be tough during the next go around. Without examples of how you can be a good LP, how can one group differentiate their money from another? I think there is something to be said for having someone in your group tagged with the responsibility to promote yourselves as an investor, maybe even more so than having a client relations person. If you can promote yourself as a good investor and get access to top performing funds, you'll get the clients you want whether or not you have a good client relations person. Of course, it would be nice to have both. :)