“There are many dates happening already” between GPs and LPs on Palico, the new online community for private equity market participants, says Founder, Chairman & CEO Antoine Drean. In a Privcap interview, Drean tells why he believes more asset class “marriages” will culminate because of online connections, and why his company will succeed where previous internet exchanges failed. Also the head of Triago, a private equity placement agent, Drean gives his optimistic prediction for the 2013 fundraising market.
Privcap: What is the most important change in the relationship between GPs and LPs?
Antoine Drean, Palico: What has changed a lot in the industry is the fact that you’re now on front of a very fragmented business. You have LPs everywhere, GPs everywhere. A few years ago US investors were investing in the states; European investors were investing in Europe. That’s not the case anymore. GPs are looking for money everywhere. LPs are looking for opportunities everywhere. They’re also much more into secondaries and co-investments. And there’s really no place where people can connect the dots. A lot of people need to know about each other and they don’t. Hence the idea of Palico.
Privcap: You use the analogy of online dating in describing Palico’s business model. Please elaborate.
Drean: Palico is definitely a place where people can meet. LPs can meet GPs. GPs can meet LPs. SPs, service providers, can also meet LPs and GPs and extend their mandates. At the end of the day it’s really a place where people can get together. Deals are done offline. I’m not a big believer in doing deals, PE deals, over the Internet. I’m pretty sure that funds cannot be raised over the Internet. I’m also quite sure that secondaries cannot be done over the Internet. However, people can have more ideas and more qualified leads to then do a deal together.
Privcap: So are “dates” happening on Palico now?
Drean: There are many dates happening already. We are hearing from a few, from people who call us and who are pleased with what we are offering them. And marriages, I guess that’s the next question, I’m pretty sure that there has been some already. We’re not invited to the parties yet. It’s a little early for that. And we’re-, as I said earlier, we are not in the business of doing deals. We’re in the business of bringing people together. What happens after a meeting is really not our business.
Privcap: Why are you confident that Palico can succeed where other prior efforts to bring private partnership connections online have failed?
Drean: I think the big difference between us and what happened previously is what people have been trying to do. Most of the others were actually trying to build exchanges dealing with secondaries. And this is, again, not what Palico is doing. Palico is just putting people together. They may have an interest on the secondary side, but the human component of doing deals in PE is left offline, where most of the other attempts have tried to take the whole value chain and do everything online. And again, we feel this is not how people want to work in this industry. Second, we are global from day one. We cover 108 countries. And we are regulated in all these areas so that people doing-, meeting on the site have no questions whether what they’re doing is right or wrong.
Privcap: How is the role of placement agents changing in the fundraising market?
Drean: I think in today’s world there is even the more need for agents. You have so many question marks out there. And GPs don’t really know where to go to for money, how to tell the story, how to put together a fundraising strategy; same thing on the secondary side. The market is now wide open. It’s not only about secondary players buying pieces of funds. It’s about every LP looking at the secondary market, selling and buying, sometimes at the same time. So agents have a true role to play; even more than a few years ago. I think those who will be winning, the agents who will be winning going forward are those that bring a lot of advice to the table, not so much a Rolodex. I guess that’s gone. This market is now very transparent. You can buy a guide to LPs for 9.99 and then you’re there.
Privcap: What are your predictions for the 2013 fundraising market?
Drean: I think 2013 and after could actually be pretty good years. I know this is what-, this is not what most people think. But I think there are a few reasons for that. First reason is that a lot of the dry powder that’s out there right now will vanish. Right? Most of the money that had-, that is there looking for deals, that we could probably qualify in some cases as hot money, has been raised in ’06/’07/’08. If you add five years to those numbers you’re now. Which means that most of the investment periods are over or close to be over; which will mean that this dry powder will just, again, vanish, so less completion on deals. At the same time you have over 1800 funds on the road right now, a record. Most of these people will not find money, which means that some teams will just leave the PE space. Some may turn into pledge funds. Some may actually start more tiny operations. But at the end of the day this will also mean less competition for deals. And at the same time many institutions and families understand that private equity is a great asset class, as long as you’re able to choose who to invest with. You can still, you know, have a pretty decent two digit return in the asset class with a pretty safe risk, pretty-, I mean, on the safe side. As long, again, as you choose the right teams.
So if you put all this together, the fact that institutions and families need returns and yield at this point because most of the rest is producing very little, and the fact that there will be less competition, at least on the buyout side, there’s probably, you know, good ingredients for better years that what we’re seeing now.