Strategies for Successful Fundraising in a Challenging Environment

Updated on: April 15, 2024

By Kyle Derkacz, Managing Director

Recently, the private equity (PE) market has felt a lot like déjà vu as many of last year’s
challenges persist — inflation, high interest rates, geopolitical uncertainties, among others. At
the outset of 2024, the expectation seemed to be that economic conditions would remain
complex and GPs would continue to face challenges including high valuations, macro-economic
instabilities, an imbalance in supply/demand, increased regulatory reporting requirements and
heightened expectations from LPs. However, “the long-term outlook remains sound, but breaking the log jam will require more robust approaches to value creation and rapid innovation in liquidity solutions.”

No matter the environment, there will always be new challenges for those looking to raise a
fund. While each GP’s circumstances are unique, there are several strategies to increase
fundraising success including securing additional investments from existing LPs, building trust
through increased transparency, and ensuring operational excellence.

Overall, PE continues to gain importance as a key component of asset allocation for both
institutional and retail investors as there is growing awareness of the potential returns offered by
PE investments. As markets adapt to economic dynamics, the role of PE is poised to expand
further, reflecting a dynamic and responsive approach to the ever-changing financial environment.

Increasing Operational Excellence

Focusing on ensuring operational excellence is critical for GPs. Doing that in-house can be
time-consuming, costly, and inefficient; conversely a fund administrator can achieve better
outcomes with shorter turnaround times.

PE firms that utilize a fund administrator effectively can transform their back-office from
segmented and costly to centralized and operationally efficient, allowing them to stand out to
current and prospective LPs.

Partnering with a strong fund administrator is the best way to navigate reporting complexities,
keep pace with the competition, avoid staff training and turnover as well as comply with
increasing regulations and reporting. The result: the GP is free to focus on what is most
important — finding investors and delivering returns.

Increasing Trust through Greater Transparency

LPs also want increased transparency and reporting — beyond just an annual meeting and
quarterly performance reports. They have become accustomed to the real-time data available
for other asset classes, want the same from their PE investment and in an easily digestible
format. In fact, 43% of institutional investors strongly agree that near real-time reporting will be
needed in the next five years, according to a survey conducted by the Harris Poll for Gen II.

Attribution analysis or performance drivers on a daily, weekly, or monthly basis may require
more effort but for LPs, that data along with insights provided by the GP are vital for budgeting,
preparing for capital events, and properly informing their tax provider throughout the year.

Securing Additional Commitment from Existing LPs

Going back to the well to secure additional investments from LPs who know and trust a GP’s
track record is a tried-and-true strategy that can bear fruit. The key to attracting additional
commitments from existing LPs will be based on several factors including performance history
most of all.

In today’s environment, LP’s have higher expectations from GPs. For example, LP’s want an
offering tailored to their needs – and they expect GPs to deliver. To that end, GPs should
consider structuring a vehicle according to key investors’ specifications.

Another successful tactic to increase existing LP participation is to extend fundraising timelines
or offer incentives to hit their targets. According to Buyouts, some GPs are extending
fundraising deadlines to 18 or even 24 months.

The Bottom Line

In today’s fundraising environment, competition is stiff, and LPs are asking questions like never
before about infrastructure and technology while demanding real-time performance data and
analytics. GPs that focus on providing more transparency and a smooth back-office operation
will create a foundation for success adaptable to the changing external environment.

Published on: April 11, 2024