60 Seconds with Sixpoint: Top Six LP Communication Best Practices During a Pandemic
Constant communication, if it’s the right kind, is never enough. Letting your LPs know that you are protecting your employees, monitoring supply chains, building 13-week cash flow forecasts and protecting liquidity, are all important things to do. But these actions, even if successful, can still fail in the eyes of your investors if you don’t get their buy-in. Why? Because one way or the other, you will likely need LP approval and support in the next stage of this crisis: whether that’s an extension of your investment period, an amendment to your waterfall, or simply an approval of a new commitment. LPs are going to stick with and support those GPs who treated them as partners during this period, sharing both their real problems and realistic solutions.
Below we have outlined six suggestions to guide your communication strategy.
1. Cut the Fluff: Get to the Point
At this point, if you haven’t sent a letter to your LPs or scheduled a status call to update them on your initial response to COVID-19, stop reading and come back once you have done so! For the rest of you, the challenge and opportunity are nearly one in the same. You must continue to provide a stream of relevant updates but with a focus on what matters most to the LP and in a manner that is digestible rather than repetitive and duplicative of the hundreds of other data points coming across their desk. It’s critical to provide multiple channels of communication for LPs so they understand the near-term impact on your portfolio, the specific operating levers being used to mitigate the risks, as well as how you are positioning each company to return to growth when shelter-in-place regulations recede. Regular written updates, standing weekly/monthly calls, access to operating teams and even CEOs in some cases are all examples you may consider. LPAC approval will usually be required or desired for any capital solution in the portfolio, so the more transparent you are in your communication, the more likely LPs are to support your future funding needs.
One additional point: The future outcome of COVID-19 remains uncertain. While there are a lot of smart, experienced professionals making educated guesses about the economy and its effect on portfolio companies, most of us are quick to admit to the limitations in predictability. As facts change, so will your outlook.
2. The Hybrid AGM: Where Virtual Meets the Real World
Whether your AGM is scheduled for the Spring or Fall you should make contingency plans for holding the Annual General Meeting virtually. It isn’t yet obvious to assume that attendance can be secured for the Fall Season, but we know for sure that most everyone this Spring will either postpone their meeting or hold it virtually. We encourage you to speak to your LPs and solicit their input. Let them have a voice in the process, which will make either decision more fruitful. Generally speaking, we recommend going virtual and following a few best practices that can help maximize both the participation and value of the meeting given the unusual circumstances brought on by COVID-19. For those who go virtual, consider including an interactive format to facilitate greater LP engagement with your deal leads or CEOs. We have also seen a few GPs organize an “AGM Supplement.” Think of this supplement as a slimmed-down in-person follow up meeting at a later date to be determined either in the GPs home city or at a portfolio company. The purpose is to re-engage socially with your partners and prospective LPs when the time is right.
3. Can You Hear Me Now? Be a Thought Partner!
Recognize that LPs are dealing with some of the same issues in their portfolio that you may be dealing with in yours. Take a step back when speaking to an LP. It’s natural to want to dive into your thoughtfully prepared presentation but try to make it a conversation. Example questions to ask may include, how their program has changed as a result of the current situation, how it is performing and if they need anything from you (i.e. insights on an industry, access to an operating partner who works for you). The goal is to analyze their problems and provide advice or color whenever possible. Don’t just make an ask, offer assistance, something they will surely remember during your next fundraise. Don’t just focus on what you are trying to communicate but also give thought to what the LP is most concerned about.
4. Yes, You, Can! Focus on the Positives!
The current environment is unlike any we have dealt with before, bringing with it deep suffering and illness for many, as well as unemployment and general uncertainty. At the same time, it is your job to take advantage of opportunities during such periods of dislocation. Playing offense should be part of your stated playbook too. Many of you have stated that this kind of opportunity may not last long, and yet it may represent one of the greatest buying opportunities of your lifetime. If these views are true, then it’s critical to weave this POV into your broader discussions and provide the topics of accretive capital, future pipeline and growth as their own line item on the agenda. Some of you may choose to raise an Annex fund to capture opportunities related to a defined “moment in time” thesis, and others may seek portfolio-level solutions to provide flexible capital like NAV-based loans that can be both offensive and defensive in nature while still others may see an attractive co-invest situation that requires outside capital. During this turmoil, having a stable and supportive base of LPs is a competitive advantage.
5. Fundraising? Don’t be Tone Deaf
When appropriate, it is ok to ask for the order and gently push LPs to a close, but the “how and when” just got a whole lot more complicated. Whether you are anticipating a new fund launch, stranded in the mid-late innings of your fundraise or reaching your final close, recognize that your messaging around most everything will need to change. Fund extensions are a reasonable request as are amendments to investment periods, recycling provisions and closing timelines but take care to make your ask based on your relationship with each LP and their own hot buttons.
6. Everything in Moderation: Don’t Over Share
Lastly, it’s essential not to over-do it with LPs. As we discussed earlier, we’ve seen some GPs actually provide too many forms of communication regarding COVID-19. This can come off as repetitive or even tone-deaf especially if you are in capital raising mode. Examples of content that has generated backlash included repetitive missives that don’t provide any tangible update or constant pings for update meetings without a stated purpose. The sweet spot is to follow up on action items mentioned in your initial COVID-19 communications or LP calls. If you’re able to condense detailed and thoughtful updates into minimal touchpoints and create a cadence and “mission moment” around each, LPs will find your emails refreshing, rather than deleting them unread.
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.