April 5, 2013
Interviewed by: David Snow
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Effective IR for GPs

Are most GPs good communicators when it comes to track record and performance? No, says Andrea Kramer of influential investment advisor Hamilton Lane. It is amazing how many GPs don’t realize they are telling the same story as their competitors, Kramer says in the third of a candid and detailed three-part interview. Also discussed: the LP challenge of processing the “tons and tons of requests for data” sent to the GPs, as well as Hamilton Lane’s partnership with iLevel Solutions.

Are most GPs good communicators when it comes to track record and performance? No, says Andrea Kramer of influential investment advisor Hamilton Lane. It is amazing how many GPs don’t realize they are telling the same story as their competitors, Kramer says in the third of a candid and detailed three-part interview. Also discussed: the LP challenge of processing the “tons and tons of requests for data” sent to the GPs, as well as Hamilton Lane’s partnership with iLevel Solutions.

Privcap: Are GPs good at communicating their particular skills and expertise? In other words, do they differentiate themselves well?

Andrea Kramer, Managing Director, Hamilton Lane: No. I would say GP’s have, you know, it’s the same message, “We’re top quartile. You know, we have great performance.” We’re a mid-market fund and that’s really what makes us unique. We source proprietary deals and I think the challenge is that they don’t really understand that the message that they’re relaying is the same message we’ve heard from every one of their competitors. So I think it’s, you know, the analogy is we see the forest because we see all these GP’s. We see all these opportunities in the marketplace and they see the trees. So they’re going to harvest huge, great, wonderful trees such as investments, which is I think a good thing from our perspective at the end of the day, but I think for them to market effectively and raise a fund, they have to understand what is it that the GP’s, that the LP’s want to hear and what is it that they’re getting from the GP’s message.

I think one of the challenges in this industry is that GP’s don’t really know how to communicate effectively with LP’s. They don’t really understand the questions that we ask because it’s really not their day job. That’s not what they do day-to-day. Thankfully, their day job is, you know, investing our dollars, but when they come and sit in front of us, they don’t really understand the questions we ask. So when we ask them about returns, they talk about gross performance and we’re asking about net. What we care about at the end of the day is actually what did our dollars generate, not what did the total, you know, portfolio dollars generate. We’re going to get to that of course, but we want to understand net net, or, you know, they really, they don’t get that part of the discussion, and then the challenge is that, you know, every LP’s going to ask different questions. So the net question tends to be a common one, but each of us has a different strategy. Each of us has a different goal at the end of the day. So from LP to LP, they’re a little confused by the conversations. So I think first and foremost, they have to understand how to communicate effectively with us and understand what are the questions that we really care about and what message should they be relaying to us, and then, yes, they really do have to understand what is their industry or what is their sector focused on and how can they differentiate themselves. I think the ones that finally hone that message and do it most effectively, they’re going to win time and time again, but this can be a pretty tough business just on the fundraising side, and so it can take a lot of time and effort and not a whole lot of, you know, results, particularly if you’re not able to raise your fund and it takes you, you know, 18 to, you know, 24 months to get that done.

How will the growing amount of data generated about private equity, portfolio companies, deal team members, etc., impact your ability to assess investment opportunities and make decisions?

Kramer: Well, so the answer to that question I think just, you know, I guess in a snide way is not much because, you know, there’s a huge amount of data that just sits idle. I think LP’s are famous for asking for the information, but you know, once they’ve got the information, it sits in a database. It sits in an excel spreadsheet, but it doesn’t move the needle that significantly cause it takes a lot of time and effort to review and evaluate this data. You know, we’ve created systems. We have track record templates and systems that we put in place so that when we get the data, we can measure it and we’re going to do things, like for example, the attribution analysis. We’re going to track who led what deal and we’re going to evaluate the return on every one of their deals or we’re going to look at net asset values and we’re going to look at, you know, what are their valuation policies and from quarter to quarter, how do they incrementally move, and at the end of the day when they exit, for example, we can see that, you know, one particular manager tends to be a turn or so below where they should be when their actual exit occurs. So, you know, we’re going to use the data in a way to measure effectively what we want, which is how do you find the best performing fund. The problem with the data is that, you know, the GP’s, they get tons and tons of requests for data, whether it’s at the initial outset when they’re fundraising or for the monitoring piece. At the fundraising side, you know, they try to harness, you know, for example, our data requests, our RFI’s. It’s commonly asked for ahead of the process so that they can kind of set up their due diligence package, and they then disseminate it into their interlink portals and create, you know, a data room. The challenge with the data is that every LP asks for something a little bit different, and so the GP’s say, “Well, okay, I’ll give it to you that way,” and if you get 40 or 50 different requests, it can be extremely burdensome. I mean you need an entire team, you know, here or India basically to input all this data. So the challenge becomes, you know, why does the LP want this kind of information? What does it really matter, and you know, the GP I think gets extremely frustrated by the process.

On the monitoring side, you need to valuate the performance of your funds, you know, post the time you’ve actually invested in them. So again, we’ve set up systems in order to extract the data as efficiently as possible so we can assess their EBITDA performance, you know, how much revenue their actually generating on each of their portfolio companies, and how are they enhancing the value of the companies. Today we’re working with a company called Eyelevel because for us this is going to be an automated measure tool for us to extract data from the GP where they’re already using Eyelevel to monitor their portfolio companies, and then we’re going to suck the data out basically and put it into our systems and be able to monitor the performance of the overall portfolio, and we think tools like that are tremendous. You know, obviously, Eyelevel would be a great tool for us cause it’s an automated process, but today, we have to do much of this manually. Again, the data’s only as good as you use it.

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