Momentum in fundraising — a good track record is not everything

Just a few years ago, fund managers did not start planning the fundraising for their next fund until shortly before the end of the investment period. They could generally count on a high renewal rate from their existing investors, provided the existing fund did not experience quite significant performance declines. With a good performance, the remaining investors were added within a period of another six to nine months until the last subscription deadline. This environment has changed. Today, numerous other factors determine success in fundraising.

The fundraising process has become much more professional in recent years, and not just because of the economic environment. General Partners (GPs) today need to be very good at both disciplines: both the investment business and the fundraising business. The success parameters in this sector are no longer defined locally but globally. In recent years in particular, investors worldwide have greatly reduced the number of their business relationships with private equity or venture capital funds (= general partners) and at the same time focused on them. There is a clear trend towards quality(flight to quality).

However, even in this environment, many private equity and venture capital funds manage to get to closing in a focused and efficient manner. Others take much longer with a similar track record. Often, only small aspects, such as preparation or timing, determine whether a process maintains its momentum or collapses, extending the fundraising period.

The preparation

First of all, the preparation and proper placement of the fund product is important. In addition to a detailed analysis of the track record (nowadays also with regard to the underlying cash flows!), it is essential to present the strategy in a detailed and plausible way. The more complex and less comprehensible a strategy is (also against the background of the track record), the more difficult it becomes to categorize the product from an investor's point of view, also from an allocation point of view. The track record should meet the principles of relevance,attribution andverification.

The brand strength of a GP and the need for a unique selling proposition (USP) has become very important. Many of the funds fall into the infamous "just another buy-out fund" category.