Liz Weiner founded Sundial Park Group to help emerging and established fund managers reach their fundraising goals and retain their hard-won investors. Over her more than 20 years of experience in real estate private equity fundraising and finance roles, she’s learned a few things about capital raising…including what to avoid!
For managers seeking capital from institutional investors, here are some do’s and don’ts when it comes to fundraising.
1) Create a game plan that prioritizes your prospects
Before embarking on a raise, you need a plan. Managers who pursue a non-targeted approach end up spinning their wheels and wasting time. Weiner recommends creating a segmented marketing plan that prioritizes outreach based on the likelihood of each LP’s commitment.
Your first priority prospects should be your existing investors. The next segment is typically comprised of LPs with whom you have an existing relationship. After these two segments are well defined, Weiner suggests creating a tier of LPs who tend to invest alongside your existing investors.
“Like-minded LPs tend to invest together,” explains Weiner. “That’s not necessarily deliberate on their part; it just shows you that investors are underwriting strategies and teams in similar ways.”
Your lowest priority LPs should be those with whom you don’t have an existing relationship and who don’t have a history of investing in your target market or strategy, but are nonetheless seen as active in your space and open to first-time funds. Weiner recommends meeting with these investors first to refine your pitch before approaching higher probability names.
“Starting with these meetings will help managers tune their delivery and deck in short order,” she explains. “These relatively low-stakes meetings are great practice and afford the opportunity to hear the questions that investors will have.”
2) Know your audience
Knowing your audience means understanding the preferences of your targeted investors.
For example, “Public pension funds have the largest real estate teams, and so they’ll pursue the most bespoke models, focusing not just on commingled funds but also on separate accounts and joint ventures,” Weiner explains. “That’s in contrast to private pension funds that typically have smaller teams and rely on commingled funds to achieve their portfolio goals.”
Before a meeting, research the investor’s objectives (e.g., return targets and diversification considerations), staffing organization, fee sensitivity, and relationships with consultants.
Often you can find this information on investors’ websites, by reviewing presentations they’ve made at conferences (which may be available online), and by searching online industry news sources/databases such as Preqin, and investment committee meeting notes for public entities, she explains.
“For some of the public pension funds, you can even come across decks of 100+ pages with investment committee notes, consultant write-ups and market overviews,” says Weiner.
Weiner recommends supplementing online research by speaking with industry peers and experts who can share valuable information about an LP’s meeting format, investment process, and key decision makers. Gathering information from all these sources can provide a good picture of the LP, allowing managers to tailor their pitch.
3) Invest time preparing for meetings
It seems straightforward, but all too often managers attend meetings unprepared.
“Bring just your pitchbook to a meeting but ensure you’re ready to follow up with a PPM, tear sheet (i.e., a one-page summary of your pitchbook), and a due diligence questionnaire. While having all those materials completed before a road show might seem premature, you want to convert a great meeting to a high probability prospect as quickly as possible. And the best way to do that is to avoid creating a bottleneck,” adds Weiner.
“Many investors won’t advance to due diligence without a PPM, and others will send managers who lag with follow-up information to the back of the line, draining the momentum from a raise.”
Weiner adds, “Another benefit of preparing materials before holding meetings is that the process will set the manager up to have a more constructive dialogue right out of the gate.”
4) Know what separates you from the pack
“Make sure you can articulate what makes you different: your investment philosophy, how you’re approaching the markets in the current climate, and where it is you see the opportunity for the vehicle you’re pitching,” says Weiner. “These elements will be specific to your organization and will set you apart.”
Equally important as describing what you like and why is explaining the deals you have passed on or the pitfalls you’re trying to avoid.
“Especially in a market where valuations are full, describing what you haven’t pursued will give an investor a great deal of insight into how you think about investment opportunities and how you deploy capital,” adds Weiner.
And be sure to focus on your team.
“That’s the secret sauce of your organization. The individuals who make it up are really unique to you,” says Weiner. “Emphasize the strength of your team, how long you’ve worked together, how you make decisions together, what each professional brings to the table, and how you handle differences of opinion.”
5) Beware of clichés
Don’t lead with “we get a lot of off-market deals,” explains Weiner. “LPs are increasingly skeptical of it. Nor are they impressed by the ‘smartest guy in the room’ approach. We think managers are better off telegraphing their abilities by focusing the discussion on transactions and how they generate consistently strong returns.”
6) Come across as a fiduciary
Institutional investors want to know that you understand you’re a steward of their capital, explains Weiner.
“We work with a manager that, as part of its employee training, really drives home the point for all employees–from senior partners to administrative assistants–that the firm is in the business of managing capital on behalf of firefighters, and teachers, and nurses. Fostering that kind of culture resonates with investors. Managers must keep in mind that they are selling both their investment management capabilities and their investment acumen. The two go hand in hand.”
Watch “The Keys to an Effective Capital Raise” webinar for more insights:
- Review of standard marketing assets expected by LPs
- How to create (and refine) an effective pitch book
- Understanding LP meeting best practices
- How to prepare for LP due diligence