JTC Americas, Formerly NES Financial, hosted a Private Equity webinar, Fundraising in the EU, with Marie Fitzpatrick, Senior Director at JTC Group’s London office; Greg Kok, Group Head Management Company at JTC Group’s Luxembourg office; Alexandrine Armstrong-Cerfontaine, Partner at Goodwin Procter; and Terence (Terry) Crikelair, Managing Partner at Champlain Advisors, LLC.
Prior to the webinar, JTC Americas spoke with our guest panelists about fundraising during a pandemic. Read what they had to say below.
You can still register and watch the informational webinar that was held on November 18 at 11 a.m. PT, and moderated by Wouter Plantenga of JTC USA. The event is free and open to the public to attend.
How has the pandemic changed fundraising?
Wouter Plantenga: Due to the inability to do in person meetings to meet with investors, virtual fundraising has been the default option. Focus for managers has been to continue to rely on existing investors, with whom they already built relationships. It is hard to build trust in a virtual environment, hence the reliance on existing investors has become crucial. More than before though, managers had to rely on their operational infrastructure to support investor due diligence processes, which has accelerated the use of technology solutions to accommodate such processes.
Alexandrine Armstrong-Cerfontaine: Travel restrictions and, in many cases, border closures have caused a significant impact on the conduct of fundraising. Closing timelines of funds near to closing accelerated greatly during the second quarter of 2020 and that changed the dynamic of the negotiation of terms over that period. At the same time, over that initial period, first funds slowed or stalled, mainly because many investors paused to assess the situation and marketing had become difficult without travels and face-to-face meetings. That changed over the second quarter of 2020, as the primary focus of both GPs and investors to continue business meant they had to proceed with virtual face-to-face meetings and virtual solutions to facilitate due diligence exercises for investors.
Many governments revisited governance and electronic signings over that period, which in turn provided legal certainty to ride out signing with social distancing. This all contributed to a strong third quarter for 2020, with a changed landscape: investors’ appetite remained strong (and in some cases, became stronger) for houses with a strong track record and/or diversified strategies, for infrastructure, private equity, some real estate, healthcare, venture and technology, with more secondaries opportunities, noting that, comfort on the GPs formulating a robust strategy to tackle the pandemic (and where applicable, Brexit), succession planning and additional equalization premiums are examples of topics investors considered more closely.
Terry Crikelair: Fundraising efficiency has improved for those working with LPs willing to rely on “desktop diligence” during the pandemic. For those LPs that require on-sites but cannot hold one, there has been a preference for reups or a need to leverage consultants and others to be creative to check the box.
Greg Kok: The most obvious impact to fundraising has been the ability of Fund Managers and Placement Agents to travel and meet directly with targeted investors. These face to face meetings has been replaced by Virtual contact sessions, which serve the purpose but are not a perfect replacement for direct contact. The positive side effect of this is that investors are now more receptive to phone and video conversations and therefore the potential audience for fundraising efforts has increased.
Also, Impacts have been felt in stages. In the early part of the pandemic there was a definite slowdown on fundraising efforts as managers adopted a wait and see attitude. However, over the last 4 months there has been a general increase in fundraising activity with the pandemic presenting numerous new opportunities for alternative managers and an expectation of lower valuations in targeted investments and a greater need for alternative sources of capital.
Do managers compete differently for capital during this pandemic?
Wouter Plantenga: I am not sure if managers have started to compete differently during this pandemic, given the abundance of capital already being raised. There may be a different scenario playing out here related to the actual investment challenge surfacing as a result of the pandemic. A tremendous amount of dry powder is sitting on the side-lines, but competition for attractive deals has become highly competitive given the low inventory in targets. Because of government stimulus plans businesses have been able to sustain the economic downturn to a certain extent and are waiting for the markets to turn, in order to benefit from valuations going upwards. This has made it much more competitive for PE managers to target new deals, whilst investor money remains untouched which is undesirable from a return point of view.
Terry Crikelair: While differentiation remains key in competing for capital, there is a strong bias toward large, established, easily referenceable GPs during the pandemic. The diligence process has largely been altered and there has been a flight to brand name GPs as evidenced by the speed and size of their recent AUM growth.
Greg Kok: The practicalities of fundraising have been impacted and those managers who are able to adapt more quickly to the virtual approach, will be in a better position to secure new investors. And, while the fundamental principles of fundraising remain constant, the pandemic has led managers to devise strategies to ensure that their marketing plans have some focus on environmental and social issues related to the fund’s target investments.
To RSVP and hear our Private Equity experts on “Fundraising in the EU” that was held on Nov. 18th, fill out the form below!
There’s never been a better time to target international investors.