“PitchBook: GP strategies, LP expectations and more: Sixpoint Partners on the latest trends in PE fundraising” by Nizar Tarhuni featuring Eric Zoller
Please click here to read the article on PitchBook’s website: PitchBook
We recently caught up with Eric Zoller, Founder and Partner at Sixpoint Partners, to discuss today’s PE fundraising trends, whether or not limited partners should adjust expectations for returns in a high-multiple environment, working with LP consultants, and more.
Sixpoint Partners is a global investment bank whose core areas of focus include primary fund placement for the middle-market private equity industry.
What are some different strategies that GPs can use to gain commitments in today’s fundraising environment?
“Outside of presenting a strong track record and a clear strategy to LPs, there are a few different ways that a GP can sweeten the deal in order to enhance its fundraising efforts. First, are fee breaks based on timing. An LP could be afforded a fee break if it invests before the first close, regardless of the size of their commitment. Generally, you want to raise at least 40% of your target by first close, which will help convince other LPs to commit in subsequent rounds. Second, are fee breaks based on size. It is easier for LPs to work with fewer GPs and vice versa, so GPs should seek to provide incentives to investors as a way of increasing their commitment size and shortening the time spent on the fundraising trail. Third, is the opportunity to co-invest, allowing investors to bypass the traditional fund structure and strengthening your relationship with LPs in the process.”
Given today’s high-multiple environment, should LPs be targeting a lower return profile than in years past?
“While EBITDA multiples are indeed high, LPs don’t necessarily need to change their targets. The best-performing funds are still targeting the same returns they always have, high teens to 20%+ IRRs and 2x+ money multiples, and are continuing to deliver. Although, if multiples stay this high for a sustained period, we may see more pressure on IRRs, as it will take longer to generate those returns; money multiples should not be affected as much.”