Strategically Supplementing Your LP Base
In previous editions of 60 Seconds, we have focused on different aspects of a full fundraise and how GPs can position themselves for success. Most of our insights have inhabited the realm of GPs that plan to run a full process and conduct a traditional fundraise seeking to meaningfully expand their LP base. However, there are certain GPs that have more limited needs as it relates to raising capital. Perhaps you have a very stable LP base that is supportive of your future fundraising plans. In such scenarios, it is understandable that GPs contemplate the need to go out to the market at all. After all, if you can raise your next fund and incrementally increase your fund’s size only through re-ups from existing LPs, is there really any need to open your fund up for new LPs? In this piece I will turn the spotlight on two underrepresented segments of the LP market that would be accretive to any GP’s platform – Asian LPs and European LPs.
For many years, North American GPs have had aversions regarding engaging Asia-based LPs. In the past, Asian LPs have been characterized as being slow-moving when evaluating new fund commitments to North America. It was not uncommon for these LPs to track a particular GP for years, across multiple funds, before ultimately deciding to invest. The barrier to entry was high as GPs would often have to make the trip to Asia to meet a particular LP, and as a result telephonic meetings or videoconferencing often replaced important in-person meetings. These days, the outlook for wooing an Asian LP has changed dramatically. Many of the insurers and family offices travel to the US more frequently. The great wealth creation in Asia has also led many LPs to further institutionalize their teams and their processes. Furthermore, given their heightened activity, many Asian LPs make frequent trips across the Pacific and have even started opening offices in North America. While you may need to still travel to Asia the relationships/process are becoming more transactional in nature increasing the velocity to close. We have seen LPs in the region commit after 2 meetings, a call and some desk work.
In a similar vein, Europe is a market that not enough North American GPs have adequately tapped into. Although connectivity between North American and European private equity markets is better than for their Asian counterparts, North American GPs face different challenges entering this market. Many managers that we speak to are hesitant to engage in Europe due to the strict and often perplexing web of regulations governing them. We have written extensively in a previous edition of 60 Seconds on how to navigate these regulatory hurdles and effectively expand into the European market. Tapping into both European markets has clear benefits for the GP. In the absence of having offices in Europe, developing close partnerships with LP institutions in these regions is the best way to give your firm a global reach and develop outsized capabilities internationally. LPs in Europe can provide introductions and expertise that will be instrumental for GPs as it relates to cross-border expansion for portfolio companies (organically or through M&A). Furthermore, the process for European fundraising can be highly targeted. By properly leveraging a few key conferences (in November and February) you can build a strong base of outreach across the contingent with limited resource investment — European LPs have mature portfolios and therefore know what they’re looking for rather than just filling an allocation.
We would welcome the opportunity to speak with you about how to selectively target Asia or Europe based LPs. At Sixpoint, we focus on providing advice and advocacy first together with a strong agency execution capability. Our goal is to serve as your long-term advisor in building your firm and franchise and to work with our clients beyond the important task of fundraising alone.
Have a wonderful 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).