November 3, 2014
Interviewed by: David Snow
Video Clip
Login to view full video

Changing Dynamics of LP-GP Contact

Keeping the investment pipeline open is an important part of a GP’s job, but maintaining contact with both the current pool of investors and potential LPs is also crucial, says Mounir “Moose” Guen of MVision Private Equity Advisers. He explains the evolution of GP-LP interaction and the trend of boards wanting more capital invested with fewer GPs.

Keeping the investment pipeline open is an important part of a GP’s job, but maintaining contact with both the current pool of investors and potential LPs is also crucial, says Mounir “Moose” Guen of MVision Private Equity Advisers. He explains the evolution of GP-LP interaction and the trend of boards wanting more capital invested with fewer GPs.

Changing Dynamics of LP-GP Contact
With Mounir Guen of MVision Private Equity Advisers

How does board-level pressure on the investment staff at LPs affect their relationships with GPs?

Mounir Guen, MVision Private Equity Advisers: The first things boards look at are their responsibilities and their actuary responsibilities, if applicable. Within that context, they then need to decide what exposures they’re going to have on a geographic front from a performance perspective and from a risk perspective, to try to ensure the type of return profile they will then want to target. When we go into the world of private equity, we’re seeing a number of trends now that are becoming more prominent. One of them is more with less, and where there are instructions and concepts in place of putting more capital with fewer general partners.

The natural next step that takes place is that your selection has to be a lot more forward thinking and preparation oriented. What I mean by that is that there is a directional push that’s coming to place where the investors are spending a lot of time identifying who they will want to build their portfolio with, looking forward at who’s coming to market in the coming couple of years, and spending the time to understand whether that short list was the right combination and the right candidates. Then, that entails extensive further diligence that’s done and getting to know your general partners, which is a bit new to the market.

One aspect that then goes on to probably the next question you were going to ask is, what are some of the filters they’re using? It gets more complex as the program gets older because (and this in part helps today’s secondary market), if I’ve got 200 general partners in my portfolio and my deal number is 60, there has to be restructuring taking place. That’s when you see chunks of portfolios transferring. There’s whole principal and that’s also being encouraged from the boards, as you referred to them, to allow an enhancing, a repositioning and a refreshing of the potential performance of the portfolio.

 

Are LPs being more proactive in approaching GPs to get a meeting?

Guen: They’re meeting quarterly. In a way, it causes some confusion because the general partner views the interest as a commitment when it’s just educational or it’s a question of trying to begin a relationship.

So, the trigger mechanisms are not there the way we were used to, and it’s very interesting that—consulting a general partner who is going to come to market—they don’t need to do introductory meetings and they can actually go into diligence. But the people who they believed were interested in their fund aren’t really interested. Then, the question is who is interested in my fund and how do I get them to engage?

 

For what reasons might certain investors maintain regular contact with a GP?

Guen: It’s a number of investors who are in touch with varying degrees of interest or degrees of trying to understand this particular general partner because some do market surveys. Some are trying to get their heads around particular groups or to justify that their current relationship is the best relationship by meeting others that are in a similar type of strategy. They all have different agendas, but the interesting point you are trying to allude to is that you could argue that the general partners are supposed to be spending all their time on the portfolio. This is a whole new wave of contact that takes place. That is why, for the first time, smaller general partners are even hiring investor relations people because somebody’s got to meet with these people and deal partners have to work on deals. The performance of their portfolio is everything.

 

So, it’s almost like there’s a village matchmaker?

Guen: I know a few general partners who basically are like, “If you’re my existing, it’s fine. If you’re not my existing, we’ll talk to you nearer the time because our focus is the portfolio.” But, on the whole, if you’re looking over a long-term and you’re looking at an open, transparent dialogue taking place, you need to meet these people. Then, the question is who do you meet? How do you use your time? We work with general partners who try to, not necessarily select for them who to meet with, but create a model, a system by which then they can continue focusing on their portfolio but still maintain a certain presence in the marketplace.

Register now to watch this video and access all content.

It's FREE!

  • CHOOSE YOUR NEWSLETTERS:
  • I agree to the Privcap terms of use and privacy policy
  • Already a subscriber? Sign In

  • This field is for validation purposes and should be left unchanged.