We are a creative integrated marketing consultancy specialising in 4 business areas: Business Services, Financial Services, Automotive Aftermarket and Recruitment Advertising. These blogs tell of some of our experiences working in these business areas.
2 July 2014
"The real work begins on
first close not several years
into the fund cycle."
Private equity communications can better reflect the quality of management and stronger financial results. And it needs to because private equity is recovering and beginning to attract capital again. Permira has finally closed its fund after years on the road. Carlyle has closed a dedicated $1billion financial services fund. Terra Firma is back in the market and looks set to raise a major fund.
Limited Partners (investors) may grumble about the model, and the 2% and 20% fee structure, but flows of capital and fund close announcements suggest investors and fund managers both think this asset class is worth backing again.
It's not as it was though - many fund managers have not and will not come to raise another fund due to poor selection, write downs, excessive levels of debt and crucially lack of investor appetite to commit to new capital rounds. While private equity communications cannot mask poor performance, it can nurture trust and build confidence and this can make the difference between new investor commitments or run-off.
So have those private equity firms still in business learned from the last cycle and toned down their claims or reinvented their investment thesis? Well not exactly. If you visit ten or so BVCA or EVCA member websites, you'll notice much the same language, emphasis and imagery. Meaning management teams, as well as investors, still cannot easily differentiate between fund manager strategy or likelihood of future success.
Certainly there are some changes in tone - private equity today is less to do with clever people making easy money and more to do with predictable systems delivering predictable results. Where we do see more obvious and important changes, is within PPMs - which are becoming longer, more comprehensive and use formulas to advocate investment principles which are then overlayed across each respective portfolio company. Also among websites - Apax Partners for example have invested and got more right than wrong.
Investors want painstaking thoroughness. For the fund manager, this entails picking the right opportunity, the right (not best) management team, fixing on an appropriate business strategy, prudent capital structures and growth through strategic acquisition fully integrated as well s very strong organic growth. Yes investors want strong realisable value but they also expect exits represented by well focused, cash generative companies, with exponentially improving EBIT and inherent sustainability. They want invested companies recognised as strategically attractive acquisition targets for a new owner. They also want to see portfolio returns being fairly consistent across an entire fund - not relying on one 'star' exit. Just how do private equity firms convey they are in this space and business? Answer - by thinking like a corporate, building a brand and brand promise that is engaging and by communicating what investors want to hear more of.
Today, there are institutional private equity managers (like Blackstone), there are generalists, special situations, debt, turn-up fund managers etc. However, regardless of which "brand" of private equity investing a manager focuses on, fund managers could and should be more creative with their private equity communication strategies and recognise that bold planning, consistent investment, carefully crafted content and creative delivery, is a pre-requisite for follow-on fundraising rounds. The real work begins on first close not several years into the fund cycle.
Recently, a large well known European LBO fund manager approached me to ask if they should be doing anything different since their last fundraising nearly seven years ago. I applaud the question. And they were right to ask because there are fundamental differences in perception between what investors, CEOs and private equity fund managers believe are important.
We recently interviewed over twenty institutional investors who were actively allocating to European private equity funds and direct co-investments. There are striking differences between what investors now think is important /what they want to see and traditional private equity communication touch points. While financial performance remains paramount, how value is secured, is equally significant. So private equity managers need to make some important positioning and communication judgements and changes in their approach and content.
It's not that private equity managers need to reinvent themselves. However, the old model of "buy", "hold", "exit", "talk up exit", "fundraising", "buy" ........is no-longer sophisticated enough these days because it doesn't do justice to the role, direction of travel, quality of decision-making, level of man-management and value creation private equity firms still in business are delivering. Nor does it justify the 2%, 20% model.
It's not surprising private equity is attracting capital once more - at nearly all levels although venture funds are still struggling in Europe. They are struggling because performance has been poorer than their US counterparts and because brand and communications has not inspired investors as it has in the US. In contrast, listed private equity funds are an often neglected group of asset managers but many that appear in the printed FT are performing well - with five making it into Henderson's recent top 20 best performing dividend growth funds over 5 years.
Fund managers who focus on challenging convention, investing in bolder communication efforts that facilitate deal flow, build brands and focus on key issues that investors are thinking about, will be better placed to fundraise and secure their futures. But it means going back to scratch for many and taking good advice.
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