60 Seconds with Sixpoint: The AGM in a Post-COVID World
As a result of COVID-19 and the quarantine measures taken, society is re-prioritizing across multiple fronts. This re-prioritization of truly essential practices versus what may be more preferred in nature magnifies as the potential onset of a recession looms near. Private equity investor relations has not been exempt from this trend as both GPs and LPs have had to rethink how they interact with each other. Of course, not everyone has the same post-virus expectations. The most optimistic players of the industry are hopeful that once state and federal restrictions are lifted, in-house face-to-face meetings will once again be the norm. While we too are hopeful, Sixpoint is preparing our clients for post-quarantine, social distancing measures in the fundraising world that may remain in place for the foreseeable future. During the initial period, it’s probable investors will still prefer a virtual level of engagement and therefore comfort when evaluating GPs.
Perhaps most impacted from a social distancing perspective is the annual general meeting or the AGM. These summits typically encompass anywhere from 50 to 500 participants and commence over a full two-day time period. Held by the GP, these include not only underlying LPs but also operating partners, vendors, friends of the firm and potential investors. In short, many GPs regard this meeting as their key opportunity to wine, dine and woo anyone in their orbit.
Obviously, indefinite quarantine means that any AGM scheduled in the next three months is on ice. An alternative that GPs are already moving towards is the virtual AGM. By going this route, GPs can develop and produce content into video modules. As a result, LPs can either listen in live or on their own time, viewing content that’s most relevant to them via the data room. A virtual AGM also allows for a direct Q&A with the GP, something that wasn’t accessible to LPs in the past. Surprisingly, this new method is proving itself to be just as efficient as the traditional AGM and is creating added flexibility for both parties.
The length of the traditional AGM has also been the subject of recent criticism. Over time, the event has become cumbersome as GPs try to make them as informative as possible while draining time and attention from their core investment duties. Multiple meetings and speakers mean that LPs often sit through material not relevant to them. For example, LPs can end up sitting through portfolio reviews for assets that they aren’t investors in. They may also endure lectures from corporate speakers that at times may be interesting but sometimes may be less relevant or informative, inducing eye rolls all around.
Not only does the typical AGM consist of all-day meetings, but it also includes dinner the night before preceded by a lengthy cocktail party. Many GPs spend months preparing for an occasion many find longwinded. The pre-COVID AGM requires an immense capital effort, while the virtual version can be arranged in a fraction of that time. One can argue that operationally, GPs could spend that time focusing on their investments instead. The most critical of LPs have stated that these lavish meetings could be classified as distractions. Instead, the virtual AGM is an opportunity to enable GPs to get right to the heart of the content, without the added planning and effort — if they so choose.
Of course, we also recognize that there is significant value in the AGM and that there is no substitute for personal interaction. I would just suggest that in some cases, if you find the AGM is something you aren’t looking forward to — there may be other ways to facilitate that personal engagement than the once a year event. For those who seek to pivot back to a time when AGMs were smaller, less lavish and more economic, the new environment offers you the chance to do so. There may now be an opportunity to either go fully virtual or leverage a hybrid model. The main differentiating factor of a hybrid AGM vis-à-vis a traditional model is the low-key nature of the event. The hybrid model is typically held in the GP office without presentations from portfolio company CEOs or operating partners. The LPs come in, and it can be very straightforward without the ceremonial feel of the original version. Unlike an entirely virtual AGM, there is the opportunity to interact face to face with investors but in a candid manner, without grandeur. If you’d like to hit ‘system reset’, you may have time now to plan how to do so.
Sixpoint Partners is a leading global advisory firm focused on a diversified set of services and solutions for the middle-market private equity industry. The firm’s core area of focus include (i) primary fund placement, (ii) secondaries advisory, and (iii) co-investment placement cross a wide range of industries, strategies, and geographies. Sixpoint is headquartered in New York with offices in Chicago, San Francisco, Austin and London.