Five Key Private Equity Fundraising Trends

Despite lingering uncertainty from a post-COVID-19 environment, increasing geopolitical tensions and inflationary pressures, the private equity (PE) market is booming with opportunities for general partners (GPs) looking to raise capital and limited partners (LPs) seeking to establish new relationships.

SS&C Intralinks, in partnership with Private Equity Wire, brought together industry experts to discuss the PE fundraising outlook. I was joined by panelists Jacob Comer, partner at NovaQuest Capital Management, and Scott V. Beechert, chief operating officer and general counsel at Granby Capital Management, LLC.

We discussed the projected evolution of fundraising over the next 12 months. Here are a few of the current key trends, insights and best practices they shared for 2022:

1. LPs are increasing their allocation to alternatives

According to findings from the SS&C Intralinks 2022 LP Survey, three-quarters of LPs plan to increase their allocation over the next 12 months with a critical focus on private equity and venture. Additionally, 55 percent of LPs plan to increase GP relationships, which is great news for GPs looking to raise capital this year.

GPs can take advantage of this increase in allocation by developing relationships and differentiating their pitch to investors. Understanding an investor's values makes the conversations easier between fundraisers and allocators. While more prominent players like pension funds are more likely to make allocations for larger funds, smaller LPs like family offices welcome smaller fund managers. Personalizing a pitch to an LP’s objectives and portfolio construction is a win.

2. Growth of emerging managers

Emerging managers are on the rise. According to Comer, an emerging manager has managed three funds or less. Some LPs have put teams together to focus exclusively on finding and building relationships with emerging managers. Of the LPs surveyed in our report, 43 percent are looking at managers on the smaller AUM spectrum of USD 100 to USD 500 million. Particularly for first-time funds, building a team of experts who can speak to an investor’s overall strategy and objectives will help them stand out in a competitive fundraising market.

3. Relationship building in a post-COVID-19 environment

The appetite is growing for more in-person interactions. While virtual solutions like video conferencing help create efficiencies in initial-stage conversations, in-person connections still matter. The poll from the LP Survey was divided on whether LPs would consider investing with a GP that they've never met in person, with more than half of the respondents saying they were unsure. The quality and depth of relationships directly correlate to the success of fundraising. In a saturated fundraising environment with a finite pool of allocators, GPs will have to continue to find ways to have consistent touches with LPs through in-person and virtual events. Finding creative and engaging ways to build new relationships and maintain and strengthen existing relationships with LPs is key.

 4. Increased focus on regulation and standardization

The call for regulation and standardization will continue to be a trend in 2022 as investors and regulators seek more transparency and data during the fundraising process. Proposed changes from the SEC, greater emphasis on environmental, social and corporate governance (ESG) and the demand for more quality data are also driving the move to more standardization. Organizations such as ILPA are leading the way to drive change within the industry.

5. Technology

Utilizing the right technology during due diligence and fundraising is another critical insight for 2022. Beechert stated, "Bad technology can sour the relationship between LPs and GPs." If the onboarding process for investors is difficult, it tarnishes the GP’s brand and may be viewed by the LP as a reflection of how that GP manages its portfolio. GPs need to not only embrace technology but also get it right. The solution is to avoid using consumer-grade document sharing tools or unsecured email. For emerging managers, it’s even more important to use technology that is widely adopted by institutional investors. Additionally, many fund managers are creating more video content and sharing annual general meeting (AGM) videos during due diligence to enable better storytelling and help LPs sift through information more easily.

My thanks to Jacob and Scott for sharing their fascinating insights and to Private Equity Wire for moderating the panel. To watch the entire discussion, click here.