Private Equity
Unlike real estate, where investors buy homes and commercial properties, which they then sell for profit within a few years Private equity invests capital into large businesses. This can result in an increase in investment returns because the profits earned from the business are shared over all investors who have invested in the fund. Private equity firms earn lots of money from fees for fund management and carried interest, as well as a percentage of each deal’s return.
As new managers enter into the market, they’ll face an uphill struggle raising a complete fund. LPs are apprehensive about their performance and have reduced their allocations. However, a successful fundraising effort is contingent on planning and preparation. Fundraising is a game of momentum and GPs should have clear paths to reach their goal levels of committed capital before going out on the streets. They should also have clarity on the sweeteners they’re ready to offer – discounts on scales, first-mover or so-called early bird benefits, for instance.
Many PE firms use placement agents to connect with LPs and to promote their funds. These professionals are paid fees based upon a bargained amount that is that the fund raises. Therefore, it is vital for GPs to assess their own investor relations department’s capabilities prior to enlisting the assistance of an agent for placement.
