Creating an Excellent LP Experience to Differentiate in Private Equity

As we discussed in a recent webinar with PE Hub, GPs are finding it increasingly difficult to differentiate themselves. Fund managers are vying for the same LP dollars and LPs are demanding a better experience—supported by increased transparency and real-time data. The key to differentiation is to create a stronger relationship, by providing a better investor experience. But how can firms, fund managers, and IR teams create an excellent LP experience to attract the top investors and opportunities?

First, let’s talk about the LP (or investor) experience. In software, there’s a concept of “user experience.” This concept is at the core of software development and focuses on the overall experience that a product creates for a user, especially in terms of how easy it is to use, how much trust it builds with customers, and how pleasing it is to use. In the software industry, the user experience is paramount to customer satisfaction.

 

We believe this is a concept that translates to the LP relationship. For firms to differentiate, they must create an outstanding experience for their investors in order to attract investment.

What is an outstanding LP experience?

To start, it’s not about the what, but the how. The point isn’t what you’re sharing with your investors, but how you’re sharing it. How do your investors receive your information? Is the experience easy? Are you proactively addressing their questions?

Best-in-class GPs are working hard to define an LP journey and experience that drives elevated engagement with their LPs. This involves close consideration of how investors receive documents and agreements, how firms manage communications around their annual meetings, and how accessible performance data is for investors.

Infrastructure to Support the Experience

The foundation of the investor experience is technology. Software systems and data allow your firm to scale and grow while giving your people more time to proactively manage investor relationships.

Once the technology foundation is laid, the top firms are leveraging data—both proprietary and 3rd-party data. In the past, fund managers might use a single solution to manage data. As the industry has evolved, firms are using a suite of best-in-class systems and connecting those systems to power their relationship management and scale their firms. We’ve broken this evolution down into a maturity cycle.

The Relationship Management Maturity Phases

  • Reactive: In this first phase of the cycle, investor data is managed in spreadsheets or perhaps the back office team members are handling management of the investor related data. It’s a rudimentary data system that isn’t centralized and likely has security issues.
  • Informed: The firms who are in this phase, truly start to consolidate all of the investor data into a central system and, as a result, have visibility into who their investors are, what their investments are across the multiple funds, and what communications have occurred with the LPs. These firms understand the full breadth of their LP relationship.
  • Proactive: A firm that is proactive is continuing to amass more information on their LPs and expanding the insights they have. We see some of our fund manager clients start to track things like co-invest interest for their LPs, what kinds of co-invests those LPs are interested in, what your firm has already presented and where they’ve express interest or turn down opportunities. Essentially, firms who are proactive are tracking the historical exchanges with their LPs, so when new opportunities arise, they can be more targeted in which investors they offer those opportunities.
  • Predictive: Our best clients are leveraging tools and sharing information with their LPs with the ability to track what the LPs are doing with that information. Firms that are operating, using a predictive approach are using tools to share reports and fund information and then tracking what the investors are doing with that information. This allows them to track behavior and monitor their investor interest so that they can improve the targeting and personalization of their communications.

The firms who are operating in the proactive and predictive phases are the most successful in attracting and building relationships with investors. They leverage technology and data through each stage of the investor experience.

Which brings us to our guide—The Stages of the Investor Experience. In our guide we cover how the top-tier firms are differentiating themselves to attract top investors by leveraging technology and data throughout the four stages of investor experience:

  1. Fundraising 
  2. Closing 
  3. Management 
  4. Service 
Read the Guide