Category: Investor Relations & LP Experience

Building healthy relationships with prospective Limited Partners is the only way a firm stays alive. Maintaining those relationships is a lot like advertising a firm to these investors. Your investor relations team wants to put their best foot forward and to make sure they’re seen favorably to the LP without compromising integrity.

Once an LP commits, keeping them engaged in  firm operations is a whole different ball game in terms of marketing. It’s up to the firms to portray their ideas and their results in the best possible light. 

As the world digitizes, investors expect an improved way for their GPs to discuss the important matters of payouts, capital calls, tax information, and investment performance among many other metrics. 

This brings us to the crux of the issue. 

PE firms need to prepare for the future by hedging against these 4 problems: 

1. Not knowing what metrics are going to keep each investor satisfied. 
2. Investor’s rapidly changing their minds in terms of what data they want to see from a firm. 
3. Slow and costly report generation due to manual inputs and lack of data consolidation 
4. A clean and efficient report, announcement, and notification system 

General Partners need a single source for all of their LP related documents and outreach.

This brings us squarely to the most optimized solution to GP struggles: an Investor Relations Platform. A dashboard with complex and customizable data visualizations which gets fed directly from the portfolio companies’ accounting data. 

A truly viable solution to your investor relations team issues will not only manage the data visualization and interpretation of a firm’s performance but will actually predict the best metrics to show to an investor given the firm’s performance. Let’s go into how a well developed dashboard solves all 4 issues mentioned above. 

1. A solid investor relations team dashboard is customizable to the LPs taste. By automating the data visualization process, investors can pick and choose the metrics they want to visualize and how they want it done. Of course, firms want to guide the investors towards metrics that showcase their best achievements. Using predictive analytics, an investor dashboard can pick and choose the initial metrics that LPs see when they log on. They also use Machine Learning to toe the line between what LPs want to see and what presents the firm in the most favorable light. 

2. Investor’s rapidly changing their mind is an unfortunate problem that can cause panic for the LP. Thus a dashboard needs to be oriented around investor psychology. A proper IR platform will guide the LP towards “stability”. The initial presentation of results to an investor is by far the most important. After years of praying that their money is going in the right direction, nothing is scarier for an investor than the first look at the results. The way a dashboard reduces that fear is that it allows the investor to track the progress of portfolio companies on a more regular basis. Every win along the way is documented and presented to investors. With regular reporting practices, investors have much less to fear. 

3. Arguably the biggest cost cutting factor a dashboard has is it rids the firm of having to outsource fund admin and IR to an agency. IR agencies are a HUGE cost to the firm’s bottom line.. After receiving the reports, IR agencies tend to take way too long to get back to the firm, often going days with radio silence and when they finally respond to a GP, they’ll often ask for clarification on data or more information on a part of the investment. After they generate very generic and most likely automated reports, they’ll deploy them to LPs without any clue in the world whether these specific LPs will respond positively or negatively. A dashboard cuts the middleman. By integrating portfolio data directly into the dashboard, there’s no need to find minute accounting reports and have a back and forth with an agent. The dashboard simply works better the more you give it and will discern what to use and what not to use without the firm having to clarify.

4. Finally, LPs today are bombarded with notifications of their investment performance towards the end of the deal cycle. It seems simple and somewhat arbitrary, but maintaining a clean communication system with an LP goes a long way. Every investor wants to know when they will receive returns on their investments but not every investor necessarily wants to know when the tax reporting has been completed for a particular portfolio company. A dashboard is once again the perfect tool with default settings optimized for getting the most amount of data out in the least possible amount of documentation. Furthermore, if LPs have preferences on what events they want to be notified of and when, they can choose to be notified of these events. 

At the end of the day, the biggest thing firms need to communicate to LPs is that they are trustworthy. There is no better way to do so other than letting LPs have (or at least think they have) a complete view of the inner workings of their investments.

Environmental, social, and governance (ESG) investing is becoming more popular among individual investors and investment firms alike. There are several reasons why ESG is gaining in popularity. But what can ESG investing mean for your firm?

Let’s take a look at what ESG criteria there is, and why private equity firms are taking it seriously for their own portfolios.

What Are Environmental, Social, and Governance (ESG) Criteria?

Companies that meet ESG criteria are evaluated based on a number of factors. These attributes are a great way for investors to find companies that match their values. 

Most companies don’t meet the criteria in all three categories. Rather, they typically focus on one or two areas within the broader scope of ESG.

• Environmental criteria can include factors such as a company’s energy use and where the energy comes from (renewable vs. fossil fuels), pollution, conservation, and their treatment of animals.
• Social criteria involve the company’s relationships with its employees, local community, and other stakeholders. Social criteria considerations also include a company’s supply chain—whether the company’s suppliers and/or distributors hold the same standard of social values as the company itself.
• Governance criteria relates to how transparent and fair a company is in governing itself. Reviews include factors such as transparent accounting and HR methods, stockholder enablement, and avoidance of conflicts of interest. And, of course, that the company doesn’t do anything illegal.

While some companies perform quite well in each ESG category, most commonly a company will excel in a particular area that is most important to them and where they direct more of their attention. 

It is up to the investor to decide which value is most meaningful to them when making investment decisions.

The Rise of ESG Investing

ESG investing is becoming more popular with PE firms for multiple reasons. First, investors themselves are becoming more interested in investing in their values (read Why Firm Culture is Important for Limited Partners).

This is particularly true as Millennials begin to make up a bigger portion of investors, and Gen Z adults, who have not entered investment markets quietly, continue to build this trend. Therefore, PE firms need to be prepared to align with the values and investment desires of their clients.

Secondly, firms are increasingly viewing ESG investing as a way to avoid a variety of risk factors that impact company profitability and investor return. A company that consciously works to decrease its impact on the environment will, in theory, produce sustainable, long-term growth. This type of organization is also less likely to have to deal with a significant environmental disaster, which can cost billions of dollars.

Take the BP oil spill as an example. The Deepwater Horizon disaster occurred in 2010. In 2014, a U.S. court found that BP was primarily responsible for the disaster due to negligence and reckless conduct. By 2018, the incident had already cost the company $62 billion in cleanup costs and penalties.

Both the environmental and financial toll could have been avoided if BP had been more focused on good corporate governance and better environmental practices. There are many other examples of companies that have cost themselves and investors millions or billions due to poor environmental, social, and governance values.

Finally, ESG investing can help improve firm culture, a key factor in overall financial success. Employees are becoming more concerned with who they are working for and the impact that the company’s work has on the world.

Talented professionals want to have a positive impact on the planet and are increasingly pursuing employment with companies whose values align with their own. Developing a strong, values-based culture in your own firm will help you hire and retain top talent in the long run.

ESG Investing: A Higher Priority for Today’s Investor

ESG investing isn’t necessarily new, but it is becoming more imperative for investors to make it a priority. Basing investment decisions on ESG requirements is a good move for PE firms that are looking to attract new investors to their firm. It’s also a great way to mitigate risks and build a strong company culture. 

At a minimum, you should take a look at your firm’s investment portfolio and values to take stock of how your investors and firm could benefit from starting or increasing ESG investing.

Modern businesses have never seen such rapid technological advancements in private equity operations as we have in the last few decades. We’ve come to rely on technology like never before for a good reason—unparalleled efficiency. 

Every industry on the planet sees the difference that digital technology makes to their processes, reporting, and communication. And since Private Equity often underpins crucial flows of capital and effective decision-making in many industries, there is vast potential with adopting technology.

Most companies believe their differentiation is rooted in having a smart, well-networked team with a good track record. But, if most companies think this same way, is it still a competitive advantage? 

No, these intelligent, networked teams are blending into the pack. They need the right technology to give them a competitive edge.

Each Private Equity firm has a cobweb of processes. With today’s technology, the only way to be efficient in operations and beat the competition is to adopt technology that supports, elevates, and executes operations processes efficiently. 

Stop Wasting Time While Raising Capital

The pandemic has altered how relationships are built and made raising capital even more laborious as LPs require additional attention. The fundraising process has been prolonged, with most funds taking longer than 12 months to close. Companies can significantly benefit from tools that improve and speed up the processes while still giving LPs the attention they require. 

What does raising capital look like without modern technology, like artificial intelligence (AI)? 

Many firms have a process that involves copying and pasting email templates with details on a new fund, their strategy, and historical track records. They then follow up that email with a call to secure interest. It’s a slow process with no clear, systemized prioritization of prospects. Everything is tracked on a spreadsheet. It’s manual, it’s time-consuming, it’s not efficient, and nothing about the process distinguishes your firm.

Companies that embrace technology are better equipped to define and measure workflows—ultimately gaining knowledge to achieve better results. With the right tools, they can come to the table armed with information to help target the right prospects and close a fund faster by identifying:

• Top capital raisers
• Most successful regions
• Origin of introductions most likely to close
• Common characteristics of most committed LPs 

Knowing these data points helps businesses hone in on what works and avoid wasting time chasing prospective investors that are less likely to close. Firms can focus on LPs and investors who fit a specific profile to close the fund and generate the best returns. 

Technology can also help firms communicate their competitive edge with data. By using objective data, companies can convey their track record, ongoing execution of investment thesis, and other critical points of differentiation. 

Manage Deals with Advanced Visibility in Private Equity Operations

Managing deals with dated technology brings about a similar process: firms use spreadsheets to identify sources and the best deals from the last fund, they reach out to the respective management teams and get a deal process started. From beginning to end, it’s all tracked on a spreadsheet or a basic CRM. There’s a lack of coordination and access to relevant data that would significantly increase efficiency.

How can firms find and execute better deals? 

A company’s most proprietary data is just the beginning, and capturing more information related to their activities and from additional 3rd party datasets will paint a more holistic picture. 

With modern technology and AI built for Private Equity, firms can gain access to a centralized database, prioritize deals based on returns, gain visibility into networking and communication efforts, and craft a comprehensive view with 3rd party data from tools like Pitchbook, DataFox, and SourceScrub. 

Gaining visibility into the pipeline gives businesses the ability to move forward with a data-driven approach. It becomes easier to identify priority areas like deal sources and stages. Historical data plays a part in determining where you can improve future deals and optimize performance for optimal returns. 

Monitor Portfolios With Less Back and Forth

Low-tech firms monitor portfolio performance with more emails and spreadsheets. One-off emails containing excel documents with firm metrics are sent to the portfolio company’s CFO. 

Then firms spend a few weeks trying to connect with the CFO and follow up with more excel spreadsheets packed with smart-art charts and pie graphs. 

The snail pace is exhausting for everyone involved—especially since it matters how fast the business can identify high-performing opportunities and take action—knowing which investments are performing best and dealing with sources that yield the best results and returns are essential. The best businesses need to pull out trends, understand if an investment is off track, and intervene accordingly. 

By getting accurate information from portfolio companies with a standardized collection method, firms can bring storytelling to life with data and leave the competition in the dust. 

Modern technology for Private Equity firms provides: 

•    Portfolio Metrics (Financial & Operational)

•    Portfolio Firmographics

•    Benchmarking & Forecasting

By streamlining portfolio company reporting and data collection, firms spend more time understanding value creation and portfolio health. This understanding leads to better management, improved performance, happy investors, and ultimately more wins. 

Meet the Expectations of Today’s Modern Investors

Sending investors to a tedious document storage site, hoping they don’t get lost, and praying they don’t lose their password does not equal quality investor relations or the likelihood of a long-term relationship. 

To improve quality and efficiency with investor relations, it helps to be proactive and automate common workflows like PPMs, Cap Calls, and Distribution Notices. By doing this, businesses reduce time spent on one-off requests and take advantage of their data, interactions, and industry knowledge to build stronger investor relationships.

Technology can measure investor engagement to inform follow-up activities and talking points. If firms can see that an investor keeps coming back to look at a specific report, they can check-in, provide additional resources, and clarify any discrepancies. 

Opening up self-serve analytics in a user-friendly and secure portal provides an advantage to both investors and firms. Investors won’t have to wait for the information; they can go in and get it when they want it and feel reassured that their data is secure. 

Upgrading Your Private Equity Operations

By upgrading technology into the modern era, Private Equity firms have a lot to gain. Every firm has a “smart team,” and you need more than spreadsheets to help you make essential decisions in raising capital, deal and portfolio management, and investor relations. With modern software that uses AI and specializes in Private Equity, firms can supercharge their efficiency to stand out in the crowd.

They say it’s not what you know, it’s who you know.

Anyone working in private equity investor relations can attest to this. Because most investment deals require a number of outside resources to close, having a trusted network of partners and experts easily accessible is vital to any firm’s success.

Unfortunately, many  firms rely on traditional networking approaches to relationship management and building their roster of key players. That’s a mistake, and one that puts them at a competitive disadvantage.

Strategic Relationship Management

According to Forbes, many general partners (GPs) spend their time “mentally reviewing their contacts while scanning for ‘good fits,’ rather than approaching it in a systematic firm-wide fashion.” In order to compete in today’s marketplace, a strategic-yet-personalized approach to relationship management—especially with limited partners (LPs)—is essential.

For starters, personalization can differentiate your firm from competitors and help you stand out from the crowd. What’s more, adopting a more strategic approach to relationship management undoubtedly results in better, more meaningful relationships over time because your firm can offer specialized service to investors.

And these two factors can add up to more—and more profitable—deals. That’s especially true in alternative assets, private equity, and venture capital (VC).

Networking is such a crucial part of the business. Consequently, it’s critical for GPs and other team members in investor relations to adopt technologies and tools that make providing a high-touch engagement experience for investors as simple as calculating an interest rate.

How can your firm increase engagement simply and seamlessly? Read on to find out. 

Effective Relationship Management: Traditional Networking Is No Longer Enough

It used to be that a few follow-up phone calls or a nice lunch or dinner out was enough to stay top of mind with investors. But these days, raising funds means being proactive and persistent in maintaining strategic relationships with LPs.

Because LPs now expect such a personalized approach, traditional networking methods are no longer sufficient. What’s more, clinging to those methods can make your firm appear “behind the times” or “out of touch.”

Personalization, on the other hand, demonstrates that your firm is committed to excellent relationship management and provides a higher level of service. To compete effectively, GPs need to understand that and have this critical capability buttoned up.

Today’s Tech Makes It Easy to Personalize

Here are two key ways you can use private equity solutions to improve relationship management:

1. Use secure interaction hubs.

Your team can take advantage of an engagement platform to manage the GP-LP relationship. You can post data and investment materials, share multimedia files like recorded fundraising webinars and video presentations, and even use the platform to capture investors’ digital signatures.

Best of all, you can manage your important documents–from draft to final—to ensure accuracy for investors, and to maintain compliance.

2. Provide high-touch investor experiences.

To manage investor demands, your team can adopt reporting and communication tools that enable you to easily track document history for better recordkeeping and compliance.

Centralized LP portals enable you to offer secure access to all of the necessary materials when putting together a deal. Even better? You demonstrate your ability to respond quickly and stay in front of potential investors every time they access the portal.

Ultimately, enhanced relationship management—and all the benefits that flow from stronger relationships—are within your reach. All you need to do is develop the appropriate processes and implement the right technology to support them. 

An Investor Relations Tool to keep LPs happy and satisfied is the cornerstone of a sustainable firm. Positive LP interactions keep funds alive: much more than perfect valuations or cost-saving operational changes do. 

In the pre-Covid era, cash was getting harder and harder to come by. During the height of the pandemic when part shortages and supply chain inefficiencies were commonplace, LPs had no choice but to sit back and pray their GPs wouldn’t report bankrupt investments in the end-of-quarter reports. 

Now, LPs have a much lower risk tolerance but the pandemic is hardly over in many countries where those inefficient supply chains originate.

Fundraising as a Data-Driven Pitch

Raising capital is more important than ever but, quite problematically, fresh cash is hard to come by. Even firms sitting on mounds of dry powder aren’t immune, capital calls only go so far. All hope is not lost however, there are many easy adjustments firms can make to their LP interactions to keep the cash flowing. 

At its core, raising capital is not similar to assigning credit lines. LPs are entrusting firms with precious cash with the hope that GPs spend their money wisely and return alpha. Just like modern banks, credit unions, and even car dealerships have technologically updated their credit assigning methods, LP feedback requires a revamp.

LPs want to be able to predict results before they invest. This of course means fundraising is now a data-driven pitch. One rather expensive option firms tend to take is simply hiring a fundraising manager to present themselves in the most favorable light and to leverage the manager’s connections. 

This may be a time-tested way to provide cash but the chances of maximizing LP synergies are very very slim. Once it comes time to raise again, these LPs seek to invest elsewhere especially after something as industry shocking as a global pandemic. 

Instead, firms need to come up with a way for investors to continuously keep track of their money and see the positive and even negative aspects of their partner firm’s investments. Painting a true picture of a firm’s performance is the best way to improve investor confidence. 

Create Transparency for LPs

One key aspect of any successful investor relationship is being able to provide the feedback the LP needs. The most eloquent way to do so (without omniscience of course) is simply letting the LP pick and choose what metrics they want to track. Similar to our analogy of credit lines, investors want to see comparable benefits. 

PE firms need a way to continuously compare their performance against industry benchmarks and, during the fundraising process, compare their fund structure to other firms.

All of these changes to IR can be centralized with a rather often overlooked solution: the dashboard in your investor relations tool. A comprehensive and even at times exhaustive collection of data visualizations, predictive analytics, and all the important tax, valuation, and exit reports. 

There is a downside to taking this course of action. If the dashboard is not set up properly, the UX/UI may be more of a hassle for LPs than it’s worth. Of course, the vast majority of firms don’t have the time to create a properly integrated dashboard, however, they need not do it on their own. Altvia’s team of analysts and tech designers collaborate to create a simple but powerful interactive dashboard for LPs that is directly powered by the firm’s data.

Stand out from the crowd

Firms need not change what they’re doing now in terms of accounting and reporting and their Investor Relations will take a big jump in the right direction. Minimizing the amount of time and capital spent developing a dashboard like this is quite important for most PE firms and so implementing an already proven solution is an easy and economical addition to any firm’s tech stack.

A well-defined dashboard lets investors keep track of the firm’s decisions and investments and keeps a strong bond between the firm and the investor. These bonds and partnerships differentiate top tier, long-lasting firms from the average 10-year lifespan rabble.

It has become more difficult than ever to secure capital and close deals in Private Equity. When you listen and provide investors with value, you build relationships, earn their trust, and instill loyalty. But, with today’s level of competition, it’s challenging to build solid relationships without the help of an investor management platform.

As business practices and technologies evolve, so do communication tools and investor relationship management. More and more Private Equity firms are adopting scalable and efficient communication solutions. 

To differentiate firms and strengthen relationships, the right communication tools make a huge difference. Firms need to focus on improving how they interact with investors and increase transparency at the core of GP-LP relationships with an investor management platform.

A Tool Purpose-Built for Private Equity Communication

We’re in an era when technology is improving rapidly and there are endless options for communication tools. But what tool will best fit a firm’s needs? 

A tool made specifically for private equity is essential. Investors have specific needs and letting them know that they are understood is a critical relationship-building step that will pay off immediately and in the future. 

The right investor management platform:

• Automates processes to save time
• Removes the risk of error
• Gives the gift of time back to your team so they can focus building solid relationships 

That’s why Altvia built a Private Equity communications solution, Altvia Correspond. Correspond uses one integrated system to manage data, communications, smart lists, enhanced analytics, and flexible mass emails and templates.

There are currently more than 5,530 active users on the platform, connecting with investors, and nurturing relationships. See how they use the platform to connect with investors and how it has transformed their communication.

Automate IR Processes

The IR teams’ goal is to drive high-impact outcomes for your firm. Removing administrative tasks and data entry projects will give them more time to effectively and thoughtfully achieve their goals. The tools chosen to support communication should make things easier, not add busy work.

Correspond provides the high-touch investor experience that investors demand while streamlining reporting and communication processes. Teams can grow relationships with personalized communications and leverage contact lists and communication templates for more frequent engagement. It’s so simple that one person alone can handle large-scale communications—up to 50,000 recipients.

An investor management platform should bridge the gap between a CRM and the back office. Establish trust with investors with relevant, on-time communication. Investors don’t want to wait for the next reporting cycle or to ask for the latest fund performance report. Thankfully, with today’s technology, they don’t have to. 

Correspond simplifies processes by generating personalized documents and auto-populating them with data already stored in the CRM. It empowers IR teams to send on-point email communication through the entire investor lifecycle, including capital call notices, PPMs, and K1s. 

Provide Personalized Responses and Avoid Errors 

With a tool like Correspond, you can be confident that investors are receiving error-free documents and up-to-the-minute reporting. 

Since communications are automated and connected to the CRM, there’s minimal risk of sending incorrect data or missing an important deadline. Correspond reduces the time required for teams to pull reports and send them off to investors from 5-10 hours down to 30 minutes. 

Be proactive by addressing investor questions and sending them the materials they want, exactly when (or even before) they need them. 

Some of those materials include:

• Performance data and reporting on investment performance
• Market insight
• Industry information
• Communications about annual meetings
• Investor documents and agreements

Send the right information at the right time with smart lists. Create dynamic and segmented email contact lists to ensure data integrity and send targeted communications. 

Personalize communication even more by creating groups of contacts to send documents regarding investor commitments and record those contacts’ communication preferences. That way important files, like capital calls, go where the investors want them–their  Portal or email. 

Once you’ve set these preferences, Correspond automatically applies the preferences to all future mailings driving accuracy and efficiency in your operations.

Enjoy audit functionality and the flexibility to track and send documents by email or through a portal to give peace of mind when communicating with key stakeholders. 

Get Back the Time You Need to Engage with Investors

Time is precious, and so are investor relationships. Investor relationships are a key driver in a firm’s success. With the right technology, IR teams will find more time on their hands to focus on nurturing relationships. 

By automating processes and significantly reducing the risk of error, teams will be less weighed down with administrative tasks and repetitive data entry. 

To make things even better, Correspond empowers firms to share reports and fund information and then track what the investors are doing with that information. This allows firms to track behavior and monitor their investor interest to improve the targeting and personalization of investor communications.

Embrace Technology to Elevate Investor Relations and Drive Revenue

By working hard (and smart with the help of technology) to manage investor relationships—earning their trust and anticipating their needs—you will set your firm up to be well-positioned for a “yes” from investors when the next fundraising opportunity arises. 

The goal should be to exceed expectations. Firms operating with tools like Correspond can be both proactive and predictive, giving their investors error-free, relevant information and guidance every step of the way. 

4 Reasons to Love Co-Investments

1. Co-Investment’s Strong Allure

Before we dive into why LPs find co-investments so appealing, let’s review how they differ from standard fund structures. Put simply, in a co-investment, an LP—along with other investors—makes a direct investment into a portfolio company. Financial investors also usually include a general partner (GP) whose traditional funds the LP already backs. This type of deal bypasses the well-defined agreements of typical private equity partnerships between GPs and LPs.

With very different terms than those in a standard partnership agreement, co-investments are technically a minority ownership stake for co-investors, many of whom are already existing LPs. 

Depending on the equity splits between a lead sponsor and the co-investors, the identity of the co-investors, and factors such as deal origination, sector expertise, and the jurisdiction of the co-investors, co-investments are often unique, with no one-size-fits-all arrangements.

2. Co-Investments Have Investor Appeal

In the age of digital disruption, investors are increasingly asking for customized arrangements like separate accounts and co-investments. So, it makes sense that LPs are eager to find opportunities like these. LPs can attract today’s investors and stand out in the marketplace.

“The demand has never been there at this level,” explains Altvia SVP, Industry Solutions & Strategy, Jeff Williams, in an interview with Tom Stabile of FundFire for the article “Blackstone, TPG Snag Private Equity Asset Crown.” He continues: “There is an increased desire for the asset class, and [limited partners] are trying to find creative ways to put [their capital] to work. And there is an overwhelming sense that we’re in the early part of the game.”

3. Co-Investments Have Term Appeal

Another big draw for LPs? 

The potential for higher returns with lower fees—something that naturally, investors are also looking for. ValueWalk reported that 80% of LPs reported better performance from co-investments than from traditional fund structures. In the same ValueWalk survey, almost half (49%) of GPs charge no management fee on co-investments, and 48% charge no carried interest.

In addition, co-investments can help lead sponsor co-investors plug holes created by tight debt markets, reduce risk exposure, and/or bring additional industry or regional expertise (or simply a brand name) to an investment. There are also opportunities to find diversification, achieve better net investment returns, and accelerate capital deployment

But the benefits don’t end there. Disagreements between GPs and LPs over a deal structure, asset buckets, or costs have ruined many a great investment. 

LPs prefer the co-investment model because it offers them an opportunity to:

• Understand how a GP operates, including how they perform due diligence
• Test-drive or deepen potential relationships with GPs, investors, and colleagues
• Piggy-back on the insight and expertise of the lead investor

4. Co-Investments Have Career Appeal

Private equity firms are finding co-investments ideal for keeping LPs on staff, while also providing opportunities for greater differentiation in the marketplace. To investors, a trusted CFO with a capable team that exceeds expectations and upholds the firm’s reputation speaks volumes during due diligence.

In fact, 48% of CFOs identified talent attrition as a top risk in the EY 2018 Global Private Equity CFO survey. CFOs understand that engaged LPs remain loyal and perform better, making co-investment deals a win-win for firms, too.

What’s more, strategic co-investments offer more than a way to attract and retain top talent, they’re also an opportunity to engage with your network in a new way and solidify your firm’s reputation in an increasingly competitive environment. 

What’s not to love?

We have interesting conversations with clients and prospects regularly about our ShareSecure virtual data room and secure data rooms in general.

In those discussions, we’ve found that there are some common misconceptions that people in the financial industry have about data room security. And, unfortunately, these “myths” represent a real risk. In some cases, people who believe them end up paying for more security than they’re getting in return or paying for features they don’t need.

But there’s an even worse potential outcome. Some of the people we talk with are using protective measures that are easily circumvented or no protective measures at all. This leaves them vulnerable to a security breach that can have both immediate and lasting consequences.

In the short term, there is the time, effort, and money expended to investigate and remedy the breach. And over the long term, the damage to a firm’s reputation for having failed to protect stakeholder data can be disastrous.

Below are the three misconceptions we encounter most often.

Myth #1 – More Security Features Equals Greater Data Room Security

Frankly, this statement depends on how you define security. If you’re just referring to the number of “security features,” then certainly some secure data room providers can tout a long list of features they’ve built into their systems.

In building our secure data room, we carefully considered the feature set and have intentionally not included a number of features because we feel that much of the functionality that expensive legacy secure data rooms offer isn’t relevant to the market they serve. Consequently, it drives up the cost of the product unnecessarily. That’s great for the provider, but not for the consumer.

One of these features, for example, is limiting a user’s ability to print or take screenshots of documents. When this feature was first introduced by those providers long ago, no one had camera phones, so preventing someone from printing hard copies of reports or taking a screenshot actually meant that, to a large extent, you could keep them from illicitly sharing information.

Today, everyone has a camera in their pocket and a continuous internet connection. Nevertheless, some people still consider printing/screenshot restrictions (and other outdated functionality) to be important and will continue to pay for it. But the truth is that if information is accessible online and people have bad intentions, there will always be ways to share it. As a result, forcing customers who need a secure data room to pay for this outdated and unnecessary feature is unreasonable.

Myth #2 – Well-Known Data Rooms Are More Secure

In the Private Equity industry, we’ve found that many people consider Dropbox to be the gold standard for sharing documents with LPs. However, you may have read this article on Dropbox security explaining that  a number of sensitive documents that were shared on the platform ended up freely accessible on the internet. 

That’s a call nobody wants to have with an investor or other stakeholder!

The same security flaw was present on the Box file sharing platform at the time. In each case, the security breach resulted from a design choice to make sharing links easier. Both platforms have been updated since this issue was discovered, of course, but the incidents underscore an important point: The big data room providers are no less susceptible to security flaws. And, you could argue that being a well-known platform makes them more of a target for hackers.

These breaches also highlight some of the drawbacks of financial institutions relying on a data-sharing service that was designed for general consumer use rather than specifically for a firm’s needs.

Myth #3 – Complete Data Room Security is Achievable

As noted above, if information can be displayed on an electronic device, it can be copied, shared, and sent around the world in seconds. There’s simply no way around that. That’s a troubling reality to wrestle with, but it’s important to keep in mind that your documents and data are safer online today than they are in a filing cabinet in your office.

The objective with developing and maintaining online secure data rooms isn’t to create something that is immune to cyberattacks at all cost. Rather, the goal is to build virtual data rooms that are affordable and highly secure while still facilitating the efficient and effective exchange of information. You’ve got to protect your data, but you also have to close deals.

In other words, it’s about balance. You want a secure data room like ShareSecure that gives you the best of both worlds.

Click here to learn more about our data room, ShareSecure.

Succession Planning for Private Equity Firms is Essential to Long-Term Financial Success

Succession planning is important for any type of business that would like to see the legacy continue after the founding members are gone. Often, private equity firms put a great deal of thought and effort into the succession planning of their operating companies, yet fail to practice what they preach when it comes to their own firm.

Succession planning refers to the process of ensuring that an organization’s operations continue uninterrupted and that its performance doesn’t suffer in the event that one or more leaders depart. A principal’s exit can be planned or unplanned, but either way, the departure can cause tremendous upheaval in the organization. Just as importantly, without proper succession planning, a change of leadership can be a cause of concern for investors and portfolio companies.

Private equity firms suffer the same consequences of poor succession planning as other types of companies. It can lead to a loss of customers, talent turnover, and reduced company performance. 

But the unique nature of private equity relationships introduces additional threats to the company when succession planning isn’t done right or doesn’t happen at all. International leadership development strategist Jenn DeWall shares, “For private equity, this can mean loss of investor trust, leading to fewer investments, instability in relationship management, and gaps in asset management.”

Why is Proper Succession Planning Important for Private Equity Firms?

It’s important for private equity leaders to understand that experienced LPs recognize that poor succession planning can be bad for their returns. Many will want to know about the firm’s succession plan during due diligence. Those private equity firms that can’t provide clear answers that reflect the careful preparation they’ve done are considered riskier investments.

This is because private equity leadership is unique. Your firm needs leaders who understand the intricacies of navigating relationships with a variety of stakeholders, including partners, investors, and leadership teams of portfolio companies, not to mention their own firm’s internal team. 

They also must be able to understand how to continue to maintain a strategic focus on value creation in current investments, while simultaneously developing new opportunities. There are not many people in the industry who have the skill and experience to understand and effectively address these factors, particularly through a period of transition.

When a leadership exit occurs in a private equity firm, there is a significant risk that the transition period will be chaotic. It can often result in key partners and/or employees leaving the organization, as well. It can also create changes in the firm’s strategic focus. These and other negative potential outcomes can impact investors’ returns, even as they are stuck in a long-term contract. 

If the ship isn’t righted quickly, investors begin to feel the burn and will react accordingly. And they should be expected to. Nobody enjoys suffering losses, in particular those that could have been avoided with better succession planning. Not only will the firm find it difficult to retain investors, it will also have a tough time bringing in new ones.

5 Private Equity Succession Planning Best Practices

Simply having a succession plan shouldn’t be any firm’s objective. There is a right way and a wrong way (really, many wrong ways) to do succession planning. In our experience, the five best practices below are essential. 

1. Start early.

It is never too early to begin succession planning. A great example of this is the story of Blue Point Capital. This mid-sized firm had a succession plan almost from the very beginning, and was able to exercise that plan by their third round of funding.

The earlier you begin your firm’s succession planning, the easier it is to put the rest of these best practices into place. It also gives you ample time to groom your next generation of leaders, helps your firm react to an unplanned exit easily, and improves transparency and communication among investors and the internal team. When you plan for succession early on, it becomes an organic transition rather than a knee-jerk reaction.

2. Remember that firm culture rules.

A positive firm culture is critical to effective succession planning for several reasons. First, if you’ve developed a sense of ownership and fairness in economic outcomes among your team members, they’re much less likely to react negatively to a leadership transition.

Developing a culture of open, honest communication and full transparency also helps with the transition. It means that you’ve been communicating with staff, partners, and investors openly about your succession plan so that there are no major surprises when it happens.

Further, when your firm has a culture that is focused on the professional development of employees, it becomes much easier to promote from within. This way, you’ll know that the next generation of leaders intimately understands the business, the culture, and the firm’s shared values. Developing your next generation of leaders should include a mix of leadership development training and mentorship programs.

When the time is right and you’ve identified the right people, promoting co-leaders in order to give them hands-on experience and training is very beneficial. As the founding leadership team of many top private equity firms are entering their twilight years, this approach to transitioning to the next generation of leaders is proving quite valuable. Bain Capital and KKR & Co. are two examples of top firms incorporating new co-leadership positions into their succession plans.

3. Keep a “portfolio” of leadership contenders.

Many private equity firms create a “portfolio” of potential CEO contenders for the companies in which they invest. But this is also a good practice for your firm’s own succession planning. Some firms simply don’t have the resources or the talent pool to be able to promote from within. In that case, you will need to do an outside search for leadership talent.

Maintaining a list of potential next-gen firm leaders helps your leadership team keep an eye on their professional development and achievements over time in order to determine how well a person fits into the firm’s vision of the future. It also helps make the transition less time consuming and costly if there is an unplanned leadership exit.

4. Develop fair incentive programs.

Including incentive programs for your firm’s next generation of leaders is a must in your succession planning. Too often, new leaders become frustrated and disenfranchised when they take on greater work and responsibilities in the firm without increased compensation, while the founder sits back and continues to take the lion’s share of economic benefit. This often leads to the successors leaving the firm prematurely to start their own firms.

Make sure your next generation of leaders are well compensated and cared for if you want to ensure your firm’s ongoing success. They need to feel a real sense of ownership in the organization, even if they weren’t the original founding members.

5. Ensure leaders get comfortable with the idea of letting go.

Perhaps the most difficult thing for a founder to do is just let go. It’s risky to hand the reins over to young and less-experienced team members. Founders worry that they’ll watch everything that they’ve worked so hard to build crumble. It’s a legitimate concern, but one that must be pushed aside if you want your succession plan to be a success.

New leaders will likely do some things in a different way and make different decisions than a founder might. But that’s not necessarily a bad thing. It’s vital that current leaders not let their egos stop their firms from continuing on without them.

Succession planning is inherently difficult in any type of organization. For private equity firms, it’s even more so. 

The transition that takes place when a key leader exits a firm can cause a significant amount of stress and financial pain—for the private equity firm as well as investors. But putting a transparent and fair succession plan into action early on, and ensuring it’s one that focuses on the development of your internal team, can smooth the transition and make sure your operations get back on track as quickly as possible.

With the COVID-19 pandemic creating physical distance between investors and fund managers, frequent communication with a private equity platform is even more paramount. 

Firms historically struggle to create a consistent and clear flow of information with their LPs, causing Investor Relations teams to feel stuck in a reactive state with limited tools to improve communication and visibility.

PEI asked 120 Fund Managers about their communications with investors and 61% stated LPs request more frequent reporting about portfolio company revenues in light of COVID-19. 

In this guide, we’re sharing how funds can keep in step with frequent reporting requests. 

For IR teams to drive key relationships and continue everyday engagements they need to:

Automate common workflows 

A maxim of productivity is to automate anything that is done more than twice. In IR departments several activities fall within this category and can be automated with a private equity platform. 

PPMs

A well-crafted PPM is an asset to investor relationship management. A PPM with modern design and thorough information can bolster confidence. Automate the process of creating your private placement memorandums so your investors see your consistency, attention to detail, and reliability. 

Cap Calls

Capital calls must be executed flawlessly to ensure the growth of your fund. Create a cap call template that includes your key information like the percentage of unfunded capital called for, due date, list of total commitments, name of the fund, and payment details. Once this template is in place, it should be added to your private equity platform so you can automatically deploy it when your firm finds its next promising deal. 

Distribution Notices

Managing distribution notices with an email service can become an administrative nightmare. Automating the distribution notices saves hours and ensures the communication schedule is reliable which cultivates LP trust.

Review communication coverage of investors and stakeholders with your private equity platform

Use interaction data provided by your communication platform to create a proactive plan for engagement. Develop a habit of reviewing tearsheets that summarize interactions with LPs. 

Measure engagement to inform follow up activities, and talking points

From your interaction reports and tearsheet review, you will see details of each interaction. Those details should be used to schedule further, meaningful connections with investors. 

Perhaps you need to schedule a brief touch base to inform an LP on the progress of a recent cap call. Perhaps you see a group of LPs is waiting on a report. Develop a practice of reviewing your LP interactions weekly and creating your task list from that. 

Provide self-serve analytics in a secure portal

Self-serve analytics is the norm for today’s tech-literate consumers. Provide investors access to as much data as possible while still maintaining a high level of communication. 

Most LPs appreciate the ability to dig into data and review it for their own purposes. Your private equity platform should have several options to display and deliver self-serve reports for investors. 

Proactive outreach earns trust

The state of investor communications has been indelibly changed. Proactive outreach to LPs is a new requirement. 

Use automation to optimize administrative tasks, follow-up based on previous interactions, accountability across the team, and share rich reports with LPs through a secure portal.

Through technology, communication can be automated without sacrificing the investor experience. Reduce time spent on one-off requests and take advantage of your data, interactions, and industry knowledge to build stronger investor relationships.