Virtual underwriting largely confined to North America

More than three-quarters of North American LPs can virtually underwrite a fund without a meeting, while only a fifth of European and Asia-Pacific LPs can do so, a survey finds.

In the Zoom era ushered in by the global pandemic, investors in alternative assets rushed to acclimatise themselves to the new phenomenon known as virtual due diligence. But a survey from Dallas-based placement agent Capstone Partners finds that it’s a much easier transition for some than others.

The survey, which had 120 participants representing LPs around the world, found 77 percent of North American LPs were able to virtually underwrite a fund without a meeting with the GP, while the equivalent figure for European and Asia-Pacific LPs was just 20 percent.

“We need to build relationships with our GPs and that is best done in person but given the current environment we are comfortable with Zoom meetings,” one US-headquartered asset manager told the survey.

By contrast, a representative of a European family office said: “We need to feel an affinity with the managers that we back, and nothing can substitute an in-person interaction.”

However, the survey pointed out that some of the North American LPs were only able to back domestic managers virtually, whereas in-person meetings were still required before commitments could be made to international managers.

Investors said the key to gaining comfort with opportunities virtually was an enormous amount of desktop due diligence supported by more reference calls than they would do otherwise – with most done as offline calls.

Virtual due diligence appears to favour established GPs with brand names and deep LP networks, whereas emerging managers raising first-time funds face an even greater challenge than they did previously with the lack of in-person meetings.

The survey also found that around 60 percent of the LPs’ commitments next year will go to re-ups and that 2021 appears to be a vintage investors are keen to have exposure to as they anticipate it performing well.