Raising Capital
The new year is upon us and 2011 is poised to bring further renewed investor interest in the private equity real estate industry. In fact, a recent WSJ article indicated that private equity is pulling out of the downturn in better shape than any thought it would. The question now on many fund managers' minds is, how do they effectively tap into that investor interest and attract equity to their funds. Raising capital is a tough job as the field is extremely challenging and competitive. It's a process that many simply do not have the know-how and/or time to undertake.
Since I am often asked by prospective clients as to exactly what a capital introduction service is and how it works, my focus in this issue will be to help answer questions about the capital-raising process and the value an experienced adviser can bring to the table.
The capital-raising team is a consultant that will expertly advise clients throughout the fund-development and fund-raising process, producing an efficient road map and guiding clients to the right investors by providing introductions to allocators seeking investments including funds of funds, family offices, foundations and endowments and corporate and private investment funds, and to consultants who work in an advisory capacity for institutions or high-net-worth investors.
A good capital introduction team will also help the fund manager focus on what to address when meeting with prospective LPs, such as performance, transparency, liquidity and volatility.
The team will effectively track current investor demand and industry-wide thematic shifts. This process enables the capital-raising team to determine a fund's potential marketability and to efficiently make appropriate introductions that are driven by current investor investment criteria.
However, it's a bit more involved then just introducing two parties. A good firm will assist a client's marketing efforts by leveraging their global investor relationships with allocators seeking investments and engaging in a consistent dialogue with investors. They will engage in targeted calling campaigns and roadshows to assist in broadening their clients investor base.
In addition, a firm hired to assist with capital raising will, in some cases, host a large investment symposium in which fund managers participate in panels, speak on timely issues and then sit down to meet with investors directly. In some cases a small, focused dinner will be organized allowing a manager the chance to communicate their story to an appropriately selected group of investors.
In the end, a good capital introduction team puts you in front of the right investors and helps secure commitments to your fund. However, since there is a long due diligence process that may involve multiple meetings, consistent follow up is critical to success. This is where time can be a real challenge if you are attempting to do this on your own. You need to stay in front of investors so that when they have capital to allocate, your fund will be front of mind.
Finally, it is important to remember this is a long process that can take on average 12 to 18 months to complete. This is not a fixed time frame, but rather an industry estimate and so for some it can be longer and for some shorter. Whether you are an established fund operator or an emerging operator, there are opportunities for managers of any size. Investors are opportunistic and want to find the best managers with unique and compelling strategies. Partner yourself with an experienced adviser and best of luck in your efforts'.
Comments (2)
Thanks for the advice. Are their investors / managers that can help in this process. I'm intrigued with the idea, but realize that I would need help at this time.
Account Closed, over 15 years ago
Great article Sagar. Our fund is noticing similar lead times to funding too.
Bryan Hancock, over 15 years ago