Investor Relations: As a GP, how do you address the demand on your time, attention and resources which is otherwise required to successfully raise your fund in an increasingly crowded and overbought market? One way, is to ensure that you implement a programmatic and measurable outsourced investor relations effort between fundraises. In the following paragraphs, we will explore best practices for implementing such a program and we’ll provide detailed examples and insights for doing so.
Fund managers can be forgiven for assuming that LPs only care about performance, but it can come as a surprise when strong performance doesn’t automatically convert into a perfect re-up outcome. No one questions the premium that LPs place on performance, but how you get to that performance and the sustainability and repeatability of those results are constantly questioned. LPs seek transparency and communication, so it’s no longer sufficient to outperform; LPs need to know what’s driving performance and what will continue to drive it going forward. Many fund managers view investor relations as a necessary evil because they don’t enjoy the marketing process. Unfortunately, GP’s frequently allow their views on investor relations to manifest itself in sub-par quarterly letters, mismanaged AGMs and long periods of radio silence with LPs – particularly when a GP isn’t raising capital. So, what can you do to improve your IR process?
First, GPs should maintain an omnichannel strategy of communication including: holding targeted LP meetings between fundraises, regional LP dinners, semi-annual “offsites” with prospective LPs, pre-diligence “onsites”, forward calendar placement. The most important element however, is ensuring that any such program is metrics-based by evaluating the value and lessons learned from each LP interaction: What did the LP find attractive or what questions did the LP still have at the end of the meeting? What is the follow-up plan? How do you, as the GP, determine if this is an LP worth the continued investment of time and resources? Sixpoint has identified 8 key elements to a successful investor relations program and I’d like to share a few of them here:
(1) Build a Content Library that allows you to stay relevant to an LP and gives you regular points of connectivity with them;
(2) Broaden your Organizational Relationship by establishing high-touch interactions where you can combine professional and personal discussions with a wider cross-section of the LP’s organization through events or dinners; decision-making is more diffuse today and establishing multiple points of contact reduces your susceptibility to turnover at the LP, and
(3) Implement a Scorecard Review where you can assess the progress you are making in building the relationship and bringing them closer to a commitment. If an LP is offered 10 possible points of engagement, but only takes you up on 2 of them, you may want to assess whether your IR plan is working or whether that LP is worthy of a continued investment of your time and efforts. On the other hand, it’s also possible that the lack of uptake is due to poor engagement on your part and our 8-part program will allow you to identify the gaps in your efforts so you can quickly course correct.
Sixpoint’s IR program is designed to seamlessly integrate with the GP’s investment activity and routine, but its focus is on bringing significant sources of new LP capital into the successor fund’s first close thereby giving it much greater chance of hitting its hard cap and accomplishing that goal in record time.
Next on 60 Seconds with Sixpoint: We will explore the changing dynamic of LP behavior around first close commitments. Once you are actively in market, what is the best way to engage an LP and how do you get an LP to commit to a defined close?