How to Build Brand Loyalty Among a Crowded LP Universe
Previously on 60 Seconds, we discussed the difference between managers who take a transactional approach to investing versus those who focus their time and efforts on building the firm – and not just the fund. The next step in the evolution of a private equity firm’s development is commonly referred to as “building the platform.” Reaching the platform milestone for a private equity firm signifies a level of achievement and success to which many in the industry aspire. Platforms bear several attributes that make them distinct from their private equity counterparts, most important among them being the TRUST that investors place in them. The consistency and quality with which platforms operate have earned them a status and respect among LPs and their peers that bring several key advantages. The primary advantage is the one sought out by almost all private equity firms: dependable financial support across vintages, strategies and structures. This brand loyalty is the hallmark of only the very best private equity firms, so the question becomes: how do well-established private equity firms earn “platform status.”
The platform partnership groups spend a lot of time studying and investing in the identity of their firms. We came to recognize this through an early engagement with a well-respected but lesser known GP in the market. Our objective blended traditional fund placement with a less traditional consultancy role focused on brand strategy. The market and our business has since evolved such that we approach every fundraising assignment with this mission in mind. Managers that fixate on their brand are continuously looking to curate their professional image among peers, counterparts and even internally. A firm’s identity is inextricably linked to that group’s key points of differentiation because invariably a PE firm is defined by how it compares to its peers. Top-tier firms focus significantly on understanding where they are exceptional in comparison to others and then determining the best way to emphasize those areas and develop their core identity. Frequently, firms lack the knowledge, focus and resources to cultivate their identity properly and the results can be a diluted or muddled message of who they are. Platforms rely heavily on their brand to convey a singular message to the market, so the firms that struggle with identity consistency rarely succeed in building a truly high-functioning platform.
Many PE firms who ardently pursue creating a dynamic investment platform end up suffering from a cult of personality instead. What do we mean by this? In an effort to quickly create a strong identity, one or more of the founding partners may try to convey potentially wishful images to the market. Unfortunately, there are no shortcuts to developing a truly lasting brand or building a platform from that brand, but the market is littered with examples of groups that have tried and failed to take an easier path. The area that requires the most time and resources when developing a successful platform is institutionalizing the firm. The theme of consistency continues to persist because platforms have the depth and breadth that are universal among the best institutions while many PE firms struggle with this element. There are no overnight successes in our business and recruiting an investment team and the necessary supporting elements to that team takes patience, discipline and a keen eye for talent. The Golden State Warriors have a motto, “Strength in Numbers”, which is very applicable to how groups should think about platform creation. It’s more than just the number of individuals, but it’s the uniformity of the quality and pedigree of these individuals that earn platforms the trust that they enjoy from investors. Successful PE platforms are well-oiled machines that execute the same set of processes around sourcing, investment, monitoring and exiting with efficiency, consistency and excellence. Investors trust in tangible and repeatable processes, so the teams that employ these most successfully are rewarded handsomely for their investment in this professionalization of their firm.
Next on 60 Seconds: The Evolving Fundraising Model: Advisors vs Agents