Fundraising is set to be more heavily biased towards existing investor relationships for the duration of the coronavirus pandemic, according to advice from law firm Dechert.
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In a note to fund managers operating in private markets, Dechert said travel bans mean fundraisers will find it difficult to forge new relationships and so should focus on existing investors or new prospects already well advanced in due diligence before the crisis hit.
Dechert also said fundraisers which have yet to hold a formal first close may want to extend the fundraising period. Funds that are yet to launch may wish to review fund terms to increase the period between first and final close or an extended investment period to maximise fund flexibility.
Funds that are already in their investment period may seek an extension to their commitment period to give investors time to deal with liquidity constraints. Revisiting other aspects of documentation such as drawdowns and deployment of capital may also help enable funds to take a more flexible approach to investing.
End of life funds may need to consider extending their drawdown periods and revising existing strategies for portfolios. Other options to consider to increase the flexibility for a mid or end of life portfolio could include co-investments, GP-led secondaries or annex funds that can provide follow-on finance.
Beyond fundraising, Dechert also advised managers to consider how they can effectively monitor portfolio companies in a world where travel is heavily restricted. Reporting obligations and processes to the fund should be a top priority to ensure they can work effectively in an environment where many staff are working remotely.
Business plans and strategies for portfolio companies may also need to be revised to reflect market disruption. Managers should consider and analyse business continuity, contingency planning, IT security, insurance, litigation, reporting deadlines and PR issues more carefully than usual, according to Dechert.