Alternative asset managers have seen their ranks explode over the last several years, due to a perfect storm of low interest rates, strong corporate growth and increased bank regulation. The number of active private equity firms has spiked 143 percent, while the number of active VC firms has rocketed 173 percent in the last 15 years. Due to all of this competition, differentiation has never been more important.
The best performing fund managers, surprisingly, are not the best fundraisers. According to Chestnut Advisory Group, good communicators outperform top investment performers by a ratio of 4-to-1 when it comes to raising new capital. The ability to differentiate and effectively convey your message to the right investors has become extremely critical to fundraising success.
Jane Morris, managing director with the private placement firm Liora Partners sums up the current state of private equity fundraising: “Fund raising is not a short term activity; it’s an ongoing, never ending process. You are either actively seeking new investors, pitch book in hand, or you are laying the groundwork for your next fund raise.”
To effectively establish your brand with investors it’s important to maintain a highly focused, tailored strategy that connects with their investment goals. This isn’t rocket science. Most fund managers already know what they need to do. The challenge typically is in the execution; fund managers aren’t necessarily the best marketers.
In our work providing investor relations technology to hundreds of alternative assets firms, we have seen some common themes emerge.
Establishing Investor Relationships
Fund raising is not one size fits all. Funds need to identify their target investor population and understand investment profiles. Their investment size, industry/area of focus, risk appetite, past investments, communication preferences, etc., are all critical. The information enables IR professionals to develop a very clear profile of what kinds of opportunities will resonate with different groups of investors for communication targeting.
The best time to start the communication, often, is when you are not raising money. Investors may want to get a better understanding of your investment philosophy, based on your thoughts about a certain asset class, industry or about your macro level views on the markets, etc. This is when your communications strategy must kick in, so that you can leverage these conversations when you are actually ready to fundraise.
In many ways, effective IR communications for an alternative asset fund is not dissimilar from a premium brand experience. Every touch point, from the look and feel of marketing and promotional materials to the tone of voice in the person who answers the phone, must convey consistency. Communications must be carefully choreographed and targeted, with appropriate delivery mechanisms and overall “consumer experience” to conform to branding.
At its core, a communications strategy must segment the investors and then figure out what to say to each segment, and through which medium, over a period of time.
Liora’s Morris explains the importance of being pitch perfect: “Nothing turns an investor off more than a tone-deaf communication from an asset manager they’ve partnered with to grow their portfolio. Alternative asset firms need to maintain a focused strategy that does not stray from what they told investors they would do for them. At the end of the day, you are building trust and that can only be done through transparent, honest, and continuous communication.” (Watch webinar on best-in-class strategies on fundraising here.)
Transparent and continuous communication means much more than sending private placement memorandums to prospects or capital call notices to investors. It involves keeping investors informed about the investment process, which can be fairly long for funds such as private equity or real estate. Investors want to make sure that the fund manager has the right relationships and processes to uncover the best investments in as short a timeframe as possible.
Savvy fund managers track their process of finding investments against industry benchmarks and communicate those metrics with their investors periodically. They keep their investors up-to-date on each operational element, such as talent acquisition, incenting and retaining talent, compliance, portfolio company management and performance, future funds and much more.
We usually see that the strategy is the (comparatively) easier part for many fund managers. The bigger challenge is to put that strategy into practice through a sustained effort, over a long period. It requires a good understanding of marketing and channels. It also requires standardized, automated processes, backed by state-of-the-art technology such as Navatar Investor. Without a process that can make things efficient (stay away from plans with too many manual handoffs), plans can quickly fall apart.
Investment strategies and return streams can often look very similar to an investor. Devoting resources strategically to outstanding investor relations is what separates leaders from laggards in the marketplace.