The Need for Speed
How Better Investor Information Translates into Faster Fundraising
By Paul Hartzell – Senior Vice President, Merrill DataSite®
At long last, there is light at the end of the tunnel for the private equity sector. Latest figures from PitchBook show a 43 percent increase in fundraising in Q1 of this year, compared to the end of 2010 – suggesting that investors are beginning to return in significant numbers.
Look beyond the headline trends, however, and some interesting divisions emerge. While overall funds raised are up, much of that investment is linked to interim closures. And even though the average time to close has dropped from 20 months at the end of 2010 to 16 months amongst the funds closed in Q1 2011, there are some funds out there that are able to shut their doors after just six weeks.
The question is, what are these equity houses doing differently to achieve such rapid results?
I believe the answer lies with an old investment truism: the only thing that really translates into faster fundraising is better performance.
Track record and transparency
We’re now at a stage where funds are beginning to show reasonable exits again - unlike even a couple of years ago, where recent performance seemed best left hidden. With investors understandably cautious, it makes perfect sense that they are attracted to those companies that have achieved the best results.
But interestingly, it’s not just the numbers that matter: it’s the way they were achieved too. Investors want to know more about the approach the fund managers took to deliver results in the downturn – and the best are able to tell that story.
This is something we’re seeing across the equity market. Where in the past quarterly reports would consist of little more than company names and addresses, today they feature detailed analysis of the activity and profitability of each individual business in a portfolio.
In a fundraising scenario, this degree of transparency serves to satisfy investors not only about where their money will be going, but also how the fund will work to ensure the best possible returns.
Cut the paper trail
Of course, the problem with generating this transparency is that those already lengthy pitch books and information memoranda will have to be even longer. That makes them more time-consuming to create and more expensive to distribute. In addition, the information they contain can be out of date within weeks – and certainly by the time the fund is closed.
That’s why more innovative fund managers have already chosen to cut the paper trail, with its associated costs and inflexibility. Instead, those at the forefront of fundraising are moving to online platforms, like DataSite, to get a detailed amount of data to the right people much more quickly.
Critically, a tool like DataSite also enables fund managers to increase the quality of their information. For example, I’ve seen some equity houses add video content, such as interviews with sector specialists to explain their strategy. Others take advantage of the speed at which information can be distributed to provide regular updates on market movements or prior investment performance.
Prospect to investor - faster
Moreover, done properly, an online ‘pitch book’ can also allow more proactive management of prospective investors. When you physically post a book to the other side of the world, it’s hard to be entirely sure if it has reached the right person. And even if you know that the right person has it, you don’t know whether they’ve actually looked at the information inside.
DataSite, however, lets you track exactly which pages each potential investor has looked at – meaning you can gauge their level of interest and understand their priorities. That means fund managers can then reach out directly to those prospects, in a highly targeted way, and even prepare for the questions they may ask – providing a level of reassurance and insight that can convert prospects to investors at a greater speed.
