Keeping Limited Partners 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 unsimilar 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 investor dashboard. 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. Altiva’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.