One of the core relationship types that drives success in the private investing landscape is with your limited partners. After all, without money from LPs, there is no fund. Moreover, given limited partners invest in you and your judgment – a long-term relationship underpins every investment decision.
There has been a lot of perspective shared on how COVID-19 will impact entrepreneurs and startups (and rightfully so!). We’ve also created a guide on general relationship development while in the world is in the midst of social distancing. However, there’s been much less guidance for investors on how to navigate their own fundraising plans and relationships.
To help bridge the gap, we’re collecting the best content we’ve found on managing limited partner relationships in the coronavirus era.
The different sections of this post will be relevant for different audiences, so use the links below to navigate to the most useful content for you:
General resources: relevant for both VC and PE professionals, and others in the private marketsVenture Capital focused: most useful for Venture Capital firms and fellow-travelersPrivate Equity focused: most useful for Private Equity teams and those that work closely with them (bankers, lenders, etc.)This will be a living post – so feel free to check back over time for updates! If you find the content useful:
Feel free to share it with a friend. As we all try to understand and navigate this new (and rapidly shifting) normal, our chances of success improve by working together.Let us know if you come across other resources you think would be helpful for othersReach out to us! We love hearing from you.General resourcesResearch and webinars
- Carta‘s Limited Partner webinar(from Ahoy Capital, University of Chicago, Georgetown Investment Office, and Cendana Capital)https://carta.com/blog/webinar-raising-capital-lp/
One key quote: “Everyone is taking a pause…but if you’re radio silent, it’s not the best look. It’s really important to show your emotional intelligence in how you approach LPs at this point…Be very thoughtful and get creative – there should be good deals you’re executing on – make sure they’re aware of the deals you’re closing. Any creative insights or thoughts that you see or that are happening in the market. It’s a time to shine and show your persistence and grit.“
- Pitchbook forecasts the impact of COVID-19 on the PE and VC marketshttps://pitchbook.com/news/reports/q1-2020-pitchbook-analyst-note-covid-19-the-sell-everything-trade-and-the-impact-on-private-markets
One key quote: “Today, while illiquidity remains a concern and will be an issue for some LPs, we think the risk of the denominator effect is somewhat mitigated because many LPs are currently underallocated to private markets. As a result, while there may be a pullback in fundraising (as our PE analysts predicted entering the year), we do not anticipate a dramatic downturn.“
Interviews + blog posts3. Andrew Golden talks about navigating through the past 2 crises, and how Princeton’s Endowment is thinking about this one.(President, PRINCO – 30-40% allocation to PE / VC)https://overcast.fm/+Iz-JhNUBQ
One key quote: “Partnership management, roster management, is job one. We would never create a new relationship to seize upon an acute opportunity. Because then what happens when that opportunity goes away? We want to partner with A+ people, and we’re going to try to make that work however we can, in whatever environment we can, subject to the constraints of physics and liquidity.“
- Sandra Robertson discusses the shifts she’s making to Oxford University’s Endowment during COVID-19(CEO / CIO, OU Endowment Management ~23% allocation to PE / VC)https://overcast.fm/+Iz-KbYOh0
One key quote: “Where we haven’t been able to get allocation to a particular manager, and there was a secondary opportunity there, we would be willing to consider that. We have a list and that would be we’d like to talk to GPs about that. So there are little pockets of opportunity like that – no major swings in this environment.“
Venture Capital focused resourcesResearch and webinars5. Industry Ventures‘ survey on the impact of COVID-19 on VC fundshttp://www.industryventures.com/the-impact-of-covid-19-on-vc-funds/
One key quote: “Most respondents expect their next fundraise to be delayed or prolonged, but a notable 39% believe fundraising will remain on schedule over the next 18 months or so.“
- Silicon Valley Bank‘s webinar on fundraising post COVID-19(University of Chicago, Cendana Capital, Foundry Group)https://events.svb.com/gpfundraisingpostcoronaworkshop
One key quote: “To the extent you can warehouse any investments…it flips you from being a powerpoint, to being a real fund. That creates more momentum, and actually differentiates you from the other 500 people out there with powerpoints trying to raise a first time fund. I also raised working capital for Cendana – 6 of my friends cobbled together a little round for me.“
- Kaufmann Fellows on better LP models for MicroVCshttps://www.kauffmanfellows.org/journal_posts/lp-model-for-micro-vc-and-emerging-managers
One key quote: “In fact, according to a survey by Samir Kaji at First Republic Bank, on average 67% of capital raised by first time funds comes from family offices.“
Interviews and blog posts8. Chris Douvos on lessons learned from prior downturns(Managing Director, Ahoy Capital)https://overcast.fm/+CKAjrORYo
One key quote: “When someone says to me ‘we see value’ – there’s value and then there’s value. 20% off is still 80% on. You’ve got guys on the buyout side who can buy 50 cent dollars.“
- Samir Kaji on the fundraising implications for emerging funds(Senior Managing Director, First Republic Bank)One key quote: “I think we’ll probably drop anywhere between 30-60% in terms of active seed firms. I also think we’ll see less seed funds come to market to offset that – partly because if you’re a first time manager, the chance of raising a fund of any reasonable amount in any reasonable timeframe is very low...fundraising is probably the hardest it’s been in 13 years“
- Beezer Clarkson on the fundraising environment during COVID-19(Managing Director, Sapphire Ventures)https://medium.com/sapphire-ventures-perspectives/the-vc-fundraising-environment-and-covid-19-9a9d95b3b62b
One key quote: “Ask your LPs how they are doing as people. And while it might be too soon — it could also be worth asking if the current environment has impacted any of their investment considerations going forward in the near term. It’s better to start the conversation now.“
https://medium.com/@Samirkaji/emerging-manager-q-a-mailbag-146c58216080
One key quote: “What I’m hearing is that only a small percentage of institutional LPs are seriously considering new manager allocations for 2020 (absent those that are in their current pipeline or who they have followed for a material amount of time).“
- Lo Toney shares his team’s perspective on the economic impact of the Coronavirus(Founding Managing Partner, Plexo Capital)https://medium.com/@lo_toney/the-economic-impact-of-coronavirus-what-gps-need-to-know-12109811ae3f
One key quote: “GPs need to also think about the composition of their LP base. If a fund has closed, GPs need to over-communicate with their LPs during this period of uncertainty. There is a higher risk of defaults in a down market, and GPs should try to remain proactive in identifying any potential challenges that LPs may have to meet their capital call commitments. This especially holds true with emerging managers as the composition of their LP base typically includes a large portion of individual investors.“
- Mar Hershenson shares advice from a survey of 59 institutional LPs for Emerging Managers(Managing Partner, Pear VC)https://medium.com/@pearvc/advice-for-emerging-managers-in-the-times-of-covid-19-54000d525310
Her key takeaways:
Adjust your Fund Size.Expect fundraising to take longer.Concentrate on LPs you have met before.Use this time to build relationships over Zoom.Acknowledge situation and expect to give more information to LPs.Be patient and take a long term perspective.Emphasize why they should invest in you (as always).14. Samir Kaji gives some advice on how to leverage capital call lines in this environment(Senior Managing Director, First Republic Bank)https://www.linkedin.com/pulse/use-capital-call-lines-emerging-managers-during-economic-samir-kaji/
One key quote: “Line sizing should be enough to cover a quarter’s worth of deal activity and lines are rarely more than 10-15% of fund commitments.“
- Lindel Eakman shares key learnings from his portfolio of GPs, as a Limited Partner at Foundry Group(Managing Director, Foundry Group Next)One key quote: “Understanding where you stand in your LPs’ portfolios is imperative, having multiple points of contact is important, and you should not just assume a re-up from them if you have to raise this year. Do your best to slow down and not hit the market until 2021. There will be a logjam of funds trying to wrap up in the fall, and LPs are way overcommitted.“
- Jacob Tasto distills their analysis of where Limited Partners are deploying capital, based on fund closesOne key quote: “What we’ve seen so far points towards at least a short-term future where LP capital flows increasingly towards known managers perceived to be stable — that is, large generalist funds often managed by male-dominated teams that have been established for years, some of whom successfully weathered the last downturn.“
Private Equity focused resourcesResearch and webinars17. Privcap brings in investor relations experts to discuss the Limited Partner / General Partner dynamic in the COVID-19 era(from StepStone, Lime Rock, and InRider Partners)https://www.privcap.com/ir-in-the-time-of-corona/
One key quote: “First time funds will be hard. You can get the story out there, but it will be very hard for you to make a connection with an LP over the phone, and quite frankly, I don’t know anyone that’s really written a check to a first time manager without having met them in person.“
- Preqin summarizes a survey of 110 asset managers on their response to COVID-19https://www.preqin.com/insights/blogs/how-investors-are-responding-to-covid19/26838
One key quote: “Indeed, investors appear to be looking closely at healthcare-focused private equity for the rest of the year. All eyes are currently on healthcare systems across the entire world as they attempt to overcome the virus, and 36% of surveyed investors plan to target the sector in 2020 as a result of the pandemic.“
- Bain & Company (the leading consulting firm for Private Equity due diligence) on the likely impact of COVID-19https://www.bain.com/insights/the-impact-of-covid-19-on-private-equity
One key quote: “LPs that backed away from private equity in the wake of the global meltdown regretted it when the industry rebounded during the subsequent recovery. These factors suggest that the decline in fund-raising this time around might be less severe than in 2008–09, when the global total dropped more than 50%.“
- Private Equity International with some troubling reporting on limited partners defaulting on their commitmentshttps://www.privateequityinternational.com/lp-defaults-already-happening-heres-why-and-what-gps-options-are/
One key quote: “Suddenly [LP’s] distributions are going through the floor…at the same time, GPs have increased their capital call rates. Some LPs weren’t expecting draw-downs until summer this year on any of their funds.”
- Eaton Partners survey of 107 institutional investors suggests they’re planning to keep private market allocations flathttps://www.ai-cio.com/news/institutional-investors-sticking-private-market-allocations-pandemic/
One key quote: “There could be some increased appetite for private equity fund managers with a 2018-2019 vintage who are looking to deploy capital. Once the markets settle down from the current volatility, vintage funds will be ideally placed to acquire portfolio companies at the bottom of the pricing curve.“
Interviews and blog posts22. Steve Nelson, who represents 500+ limited partner firms, on how they’re thinking through the crisis(CEO, Institutional Limited Partners Association)https://overcast.fm/+Iz-LdICR0
One key quote: “The areas where there’s real interest and opportunities that could emerge given how the environment could shape up – distressed, credit opportunity funds, secondaries, down the line – I think there’s budding interest going to be growing interest in those areas as we go forward.”
- Allen Latta’s view on how private equity Limited Partners should be approaching COVID-19(Managing Partner, Campton Private Equity Advisors)http://www.allenlatta.com/allens-blog/lp-corner-some-thoughts-for-lps-during-the-covid-19-crisis
One key quote: “In the GFC, I recall fund secondary transactions being conducted at discounts of over 50% to NAV. This means that there may be some very good opportunities for LPs to buy fund secondaries from distressed LPs.“
Thanks for reading!
