Brand Identity: Do You Know How Investors Perceive You?
Many GPs that I interact with lament their inability to accurately gauge market perception of their firm independently. They often find themselves receiving platitudes from LPs – both existing and new – instead of good, hard feedback that they can use to identify and address issues in their firm. The root of this issue is different for existing LPs versus new LPs, so GPs striving to have an open and frank relationship with investors would do well to understand the reasons behind these issues and what actions they can take to ameliorate them.
The problem with soliciting feedback from existing LPs usually lies in the setting in which they receive updates. Too many GPs that we see focus on Advisory Committee meetings as the forum to provide detailed updates to existing LPs. Issues such as fund launch timing, discussions around a troubled asset, co-investment allocation, etc. are often only explored in a group setting, which is not conducive to honest conversations. Often times GPs simply won’t receive real feedback until they are back in the market and asking the LP for subscription documents.
The echo chamber of platitudes is even louder when it comes to new LPs. New LPs have even less of an incentive to provide direct feedback to the GP. After all, what do they have to gain? They don’t have any capital invested with you, they often don’t receive full disclosure around track record and performance, they usually haven’t met the whole team and most importantly they want to keep their options open for future funds – regardless of whether they would invest in your firm currently.
So how should you respond to this phenomenon and what practical steps can you take to separate the wheat from the chaff as it relates to LP feedback?
- Overcommunicate. With existing LPs, make a habit out of visiting important LPs individually to provide detailed updates in person and don’t wait until you’re 70% invested or what you perceive is a key catalyst to do so. You can’t overcommunicate.
- Drive the process. Make sure you discuss the LP’s interest level, ticket size, open diligence items, GP comps, allocation capability, diligence process, etc. and direct the discussion in a fashion that enables you to address an LP’s concerns and assess their true level of interest.
- Have an ask. As the dialogue deepens and in turn the relationship does as well, make an ask of the LP to show his/her commitment to the firm. If you are running an effective investor relations program (see our prior issues on this topic or reach out for more information), you will have created multiple opportunities for engagement. If the LP isn’t taking you up on these opportunities or otherwise investing the time and effort to attend your AGM, meet with your team at conferences and especially at one-off organized events among other points of potential interaction (substantive and social) – then that is your signal to react to. Other “asks” can include a timeline by which you are seeking an answer, list of open diligence questions, or any other point of feedback depending on where you are in process with the particular discussion.
Use the above recommendations as a starting point but make sure to go beyond it to create a tailored strategy. As usual, we welcome your perspective and questions on this topic. Have a great weekend!
Sixpoint Partners, LLC, is a registered broker/dealer, member FINRA (http://www.finra.org) and SIPC (http://www.sipc.org). Sixpoint Partners Asia Limited is licensed by the Securities and Futures Commission (http://www.sfc.hk).
