One investor relations professional recently told sister title Private Equity International that there was only one limited partner on their book that they had not met face-to-face. “I am in fact making a detour of 100 miles or so when on holiday in a few weeks just so I can meet them, look them in the eye, have a coffee and hopefully bump fists or elbows in the absence of shaking hands,” they explained.

The executive has completed on $1 billion in commitments to their firm’s latest fund during 2020.

Such is the business of private markets, where personal connections matter. This was an idea that kept surfacing at PEI’s virtual Investor Relations, Marketing & Communications Forum. IR folk are worrying that the pandemic-induced move to online meetings could change private markets from a “character-driven, relationship business to a ‘what are your returns?’ business”, as one senior IR exec put it. In an earlier panel, an LP dismissed the idea that they could ever make a commitment to a GP without an in-person meeting: “Our model is extremely people-oriented.”

‘Returns matter so little’

You could take a dim view of an industry in which personality plays a part in fiduciary decisions. As Mario Giannini, chief executive of Hamilton Lane, says in an interview with PEI: “One of the amazing things about this asset class is, for some LPs, returns matter so little relative to other [factors]. It’s a bad thing that people are making decisions based on ‘I like or I don’t like Mario’.”

The flipside, Giannini adds, is that it cannot all be quantitative. Even with a burgeoning secondaries sector, private equity is an illiquid market and relationships last decades. As the holiday-interrupting IR exec says, a good relationship will “absolutely not” sway an investment committee decision on whether to invest. “But we are social beings, and it’s the right and proper thing to do.”

For investors, on-site and in-person meetings are not about working out whether they ‘like’ a GP. They are an additional realm in which to pick up what one investor describes as the “grey” red flags. Is the managing partner too dominant? Is the story consistent? These matters are harder to discern over Zoom.

When it comes to the pandemic, initial optimism is giving way to the realisation that we may be sitting here a year from now with travel still curtailed and offices half-empty. ‘Extremely people-oriented’ investors will have to adapt because, for most organisations, not investing is simply not an option. Investors do not want to miss out on a vintage; and for funds of funds, investing is what they are paid for.

When it comes to conducting fund due diligence, data rooms and reference calls remain the same whether you are in the home office or conference room. The question is whether investors can find new ways to identify those grey red flags or risk investing without that last layer of comfort.

Toby Mitchenall is head of newsletters at PEI Media