Qualities That Drive Private Equity Firm Institutional Fundraising
In our experience institutional investors seek a certain profile of private equity firms at this end of the market:
Consistent upper quartile performance with low volatility; high volatility but well-performing funds Wil have investor questions with regard to deal section and process for the inconsitent results
Leadership, team cohesion,widely-distributed carried interest and a clear development process for team members; longevity of team tenure with modest amount of turnover preferred
Broad deal attribution within the team for successful deals and a lack of team member concentration of attribution in under-performing deals
A high quality reputation as gleaned from references provided, as well as the investor’s own network of reference points
A very well defined strategy/investment thesis that has been consistent, albeit, allowances for evolution of that strategy from lessons learned or prominent shifts in industry conditions
Clear competitive advantage in its niche, most prominently manifested by differentiating factors that signal why the firm has a distinctive ability to compete and deliver
If the firm has an industry focus (or foci) then it must demonstrate its advantages in those sector(s) in terms of relationships, deal flow market intelligence among other items
Well-developed practices and processes with respect to deal flow, deal criteria and selection, due diligence, transaction execution, portfolio company development & operations and the exit process; does the firm have a continuous improvement culture and how is it evident?
A significant percentage of the General Partners’ liquid net worth invested in each fund, with total team commitments of ideally, at least 3% of the total fund to be raised
Unless, widely successful in prior funds, limited partnership terms will need to approximate market at the time the fund is raised. Allowances can sometimes be made for a relatively small fund supporting a large team (for the size of fund), in terms of fee sharing.
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