The role of the investor relations professional is being redefined to both meet the expectations of the growing private equity industry and to add value to a business.
We see the following four forces redefining the role of the private equity IR function:
Growth in alternatives
Globally, investors are increasing their exposure to alternatives as they search for asset classes that can deliver differentiated returns. It’s important to remember, however, that private equity is a unique asset class given its long-term nature and relative lack of performance and risk data compared with other institutional investments.
That is why it’s critical for IR teams to actively and continually engage investors in the story behind the investment approach, and make sure LPs feel comfortable with their commitment over the extent of its duration.
General partners are increasingly putting the customer experience at the heart of the operating model, giving the IR team closer control of the ‘customer journey.’ The continued ‘Amazonization’ of the investment process means that investors have come to expect a higher level of client service than the PE industry is accustomed to.
Investors now expect near real-time transparency into the performance of their allocations, meaning IR professionals must have the performance data of every holding at their fingertips, from deployment of capital through to an LP’s potential exit. Investors can use this information to evaluate their overall portfolio on a like-for-like basis, and to make more informed risk and portfolio management decisions.
As GPs often fundraise on a rolling basis, and deploy capital in more complex ways such as recycling funds or using credit, IR teams need to have excellent communication and client relationship skills, and a robust understanding of reporting tools to support them. Every IR professional is becoming part relationship manager and part salesperson, juggling both hats through the stages of the investment cycle.
Today’s private equity industry would be almost unrecognizable to the investors of 10 or 20 years ago. Recent innovations have increased the range and complexity of investment structures, and this is especially true of co-investments, which have grown in popularity among both large and mid-sized institutional investors. IR teams now tend to run the co-investment process, leaving the deal team to focus on origination. This requires strong, one-on-one relationships with each LP, and an understanding of investment and risk metrics.
This isn’t restricted to private equity and across alternatives there is a ‘hybridization’ of investment structures, with hedge funds launching PE-like funds and PE managers looking to offer more liquid versions of their strategies. IR professionals across alternatives firms need to be able to understand the nuances of these different structures and clearly communicate to investors how a specific strategy or fund fits into a portfolio.
There are numerous tools that allow investors to easily and efficiently pull data on a particular investment, company or market. The prevalence of financial data, research and analytics has transformed the role of the average IR professional from mere data-gatherer to value-added data analyst. Instead of just sharing data points with investors, IR professionals are now expected to analyze and provide insights on their relevance in the context of an investor’s private equity allocation. Playing a more strategic role, IRs become more closely aligned with the technically minded portfolio management team.
IR professionals need to be comfortable using different types of technology and third-party systems and applications. This may include providing financial charts to an investor, or closely tracking capital commitments throughout the fundraising process.
As more firms embrace the value that can be generated from an increasingly strategic IR function, the new multi-faceted IR professional will face a series of challenges. From building long-term relationships with new or inexperienced alternatives investors, to providing real-time performance data reporting across increasingly complex investment vehicles, the modern IR professional will also require fluency with sophisticated analytical and administrative tools in order to optimally manage the position’s new array of responsibilities.
Yet, for the savviest investor relations teams, this evolution in their role also represents an important opportunity to help GPs further deepen their trusted LP relationships and ultimately deliver sustainable long-term value to investors in the competitive and complex private marketplace.