March 23, 2015
Interviewed by: David Snow
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Why Foreign GPs Should Maintain a U.S. Presence

Fundraising experts Mona Marquardt of Abbott Capital Management, Mounir Guen of MVision, and Richard Kunzer of BC Partners discuss the importance of relationship building for non-U.S. GPs, why they should always be thinking of their next fundraise, and how they can stand out in a competitive market.

Fundraising experts Mona Marquardt of Abbott Capital Management, Mounir Guen of MVision, and Richard Kunzer of BC Partners discuss the importance of relationship building for non-U.S. GPs, why they should always be thinking of their next fundraise, and how they can stand out in a competitive market.

Why Foreign GPs Should Maintain a U.S. Presence
Fundraising in the U.S.

David Snow, Privcap: Today we’re joined by Mona Marquardt of Abbott Capital Management, Mounir Guen of MVision and Richard Kunzer of BC Partners. Everybody, welcome to Privcap. Thanks for being here.

Unison: Thank you.

Snow: All of you are fundraising experts and we’re talking about, arguably, the most important fundraising market in the world—the U.S. private equity fundraising market. I’m fascinated to hear your views on what, especially, a non-U.S. GP needs to understand before coming to the U.S. One very important aspect of the U.S. market is that if you show up while you’re fundraising for the first time, it’s probably already too late. You need to spend time in between fundraisings establishing yourself and getting on lists. We’re going to hear about all of those technical details. First, starting with Mona, from your point of view, why do you need to be in the U.S. when you’re not fundraising in order to be successful on your next fundraise?

Mona Marquardt, Abbott Capital Management: There are both relationship reasons and simply practical, logistical reasons. From a relationship side, it is much easier for an LP or prospective investor to reject a product sale conversation than to reject a more relationship-development, introductory conversation. If you have a product to sell and that’s what you’re talking about, they need it or they don’t. And you may not have that first conversation. To be in the market in between funds where you are talking more broadly about your strategy—perhaps educating somewhat about the market you’re operating in, about what you see as being the landscape, giving something to them, not just asking for their time about the fund—can be more effective.

On the practical side, as you said, David, you might not have enough lead-time if you’re coming to U.S. LPs when you’re already fundraising. Also, some of your U.S. perspective investors might have different expectations or requirements around legal documents and terms. If you’ve already had a close, that’s going to be more complicated to revise potentially, given that you have other LPs in the fund. Better to get that sorted out, if possible, before you even come to market.

Richard Kunzer, BC Partners: Allied with that is also the important aspect that, for example, we’re a fund with offices across Europe and here in New York. People want to go and visit the investment personnel. At the end of the day, that’s the key part of our business—people. And they can’t really make a decision unless they’ve had the time to go and visit the people in London, or the people in Hong Kong, or wherever it might be that that GP has the investment team. Just turning up to say, “We’re having a first close in three months; thanks very much.” Just doesn’t give time. It’s just a practical consideration. People need a long lead-time to do their work, to get to know people, before they can even start to look at documents.

Mounir Guen, MVision Private Equity Advisers: Within the U.S., you have to remember, it’s a very deep market. It’s the oldest market. We were talking in a prior session about the weight of the U.S. capital. About 70% of total private equity capital originates out of the U.S. The first thing you have to remember in the U.S. is that there’s a massive diversity of types of investors. You’ve got high net-worth, family groups, foundations, endowments, corporate pensions, public pensions, municipal pensions—the list just goes on.

Marquardt: Insurance companies.

Guen: Insurance companies. The list just goes on and on. And it’s extremely important that you understand that within that, you have opportunistic-oriented investors and they’re looking for things that are very interesting and off the beaten track. So you’ve got to go and meet your investor to make sure that, if it’s a tough decision, you might have a couple of points to your advantage because you’ve spent that personal time as opposed to someone who shows up once in a blue moon, right?

Snow: It gets as technical at some, I’m going to guess, U.S. pension funds to the extent that there might be some list that you need to get on in order to get a meeting a year later. Correct?

Guen: Yeah. But it’s ever more complicated on the relationship they might have with their advisor or gatekeeper. Because, in some cases, the gatekeeper creates the filter. In other cases, the investor creates the filter with the gatekeeper. And in the other case, the investor creates the filter and that approach can change according to who they’re working with at the time or where they are in their cycle or on the people in that institution at that time.

Marquardt: So it really is critical to have a very direct, up-front conversation with LPs and gatekeepers about their process. And not hoping you get it or thinking that you can’t ask directly, but to be very precise about [asking] when are decisions made, what are the inputs to the decisions, what’s the cycle time, how many board meetings, how frequently and who are the decision makers. To actually back that in—if you’re T-minus, whatever, nine months that you need to get through that process—because otherwise you’re going to be one of the entities that you referred to Moose that just don’t make a decision.

Kunzer: Mona brings up a great point about people. A lot of these organizations are quite large and there are a number of people who need to meet with a GP because they’re all part of that decision-making process. And if you fly all the way to California or Ohio or wherever it might be, you might see one or two of the people. So you need to come back on a regular basis so that they get to know you and you get to know them and to meet all of the people who are relevant. That’s an important thing and it’s similar to a lot of things in life. You’re not just going to put some money down because you met somebody once when they’re asking for it.

Guen: There is a nuance in today’s market that is very different from what we’ve had in the past. Part of that came from the financial crisis where the J-curve flattened out and the return profile went down a bit, right? The investors today are very open to a relationship, which all of us have agreed to. But they want to have some form of contact and, you mustn’t forget, they’re looking at that J-curve all the time. So the two dynamics that have become quite prominent in a discussion with an investor are not only your primary’s pitch, but can you do a secondary with them? Is there a co-invest so that they can build a relationship with you?

Snow: Richard, you are a big believer in co-investments as a way to build relationships with LPs in between fundraisings. Can you talk about how that works and what the importance is?

Kunzer: We’ve traditionally had our limited partners co-investing alongside us for a long time. We’ve been around for 20plus years and some of our longest and, to be honest, largest LPs have done a significant number of co-invests. We always prefer to team up with investors rather than another GP and we find it a very good way for them to get to know us a lot better. One comment we frequently get from the investor base when they’ve done a co-investment is [that] they really understand. It’s very hard as an investor. You’re sitting across the table like this. People come in, they talk about their firm and it’s an hour or two-hour meeting. They can explain their investment process and how they write their memos and try to explain the secret sauce that differentiates them from that other peer out there. But it’s not until you’ve done a co-invest together and worked together, from a GP’s perspective, to get to know your investors much better and to know what their hot-button topics are, etc. We’ve found it’s been very successful for us, working across our investor base. We have investors from largest to smallest who have co-invested with us.

Snow: Anything we’ve neglected to talk about by way of things you do when you’re in between fundraisings and communications that you should have with LPs other than, “Will you please invest in my next fund?”

Kunzer: Transparency?

Marquardt: Right—transparency. We talked about it a bit earlier, but [it’s] the general need to maintain that relationship with more than simply the transactional communication about the fund and its returns. Moose mentioned the focus on J-curve. Even the most sophisticated private equity investor, at the end of the day, is a human being who is nervous about what numbers are actually showing up and are reported. You can run into a situation where there will actually be buyer’s remorse and you want to avoid that at all costs. Getting back to transparency—making sure people understand every investment that’s been made and what the likely trajectory is. If there’s a bump in the road, where that’s coming from. And coming with information that helps your investor actually explain what’s going on to their constituents in their office, whether it’s the board or the public employees they’re responsible for, so that they’re not caught off-guard.

Kunzer: Yeah, the worst thing any investor anywhere in the world wants to do is open up their newspaper—we go back to the headlines you were mentioning before—and read about a company that is a private equity investment that they have in their portfolio and they did not know about it. Because they’ve probably had 50 emails already asking, “Aren’t we invested in that?” So it’s, if things are good, be transparent. But more importantly, when things may not be going so well in your portfolio, you have to be very upfront, very transparent on it and explain what you’re trying to do, the reasons and so forth.

Guen: One thing that, again, we encourage our general partner clients to consider is to have open discussions with small clusters of investors to ensure that they’re communicating correctly, that the investors actually understand the portfolio, that they’re able to understand the valuation policies or understand where some of the companies are going and why certain companies were done and the robustness of the pipeline. These types of discussions with the existing relationships are absolutely critical.

One thing that’s important to us is to be able to understand the global dynamics. And to be able to understand how capital flows, how it processes, how it thinks and what’s vital to it. And then to help guide our clients—our GP clients, I should stress—through those types of unchartered or chartered waters and navigate the process to an ability to deliver for them in a realistic timeframe, to a realistic result.

On the other side of the equation, it’s very important that the investors are really well understood, that their processes are respected and that we work to try to make life easier for them by anticipating some of their issues and their questions, by understanding their programs and what works and what doesn’t work and by being able to help their programs achieve their targets through the introduction to the right strategies.

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