What’s the first thing an LP does when they get your PPM or marketing slide deck? They turn to the track record page and check out your gross and net IRRs, and return multiples. Of course, returns are extremely important to LPs, but this is not the only concern of the modern investor.
CEPRES has collected feedback from LPs over the years on what they want to see during due diligence on GP track records, and overwhelmingly they have demonstrated an interest in efficiency, using the latest technology, and an understanding of the need for accurate, granular data for making investment decisions. But what does this mean for GPs? And how can GPs use this technology to their advantage?
To answer these questions, it’s important to understand what LPs are really looking for. Aside from the obvious of analyzing returns and the attribution of returns, LPs are also focusing on liquidity. This is an important parameter, particularly for an illiquid asset class, like private equity. On the CEPRES Platform, features such as realization and DPI ratios, gross and net J-curves, investment holding periods, and fund breakeven periods, empower GPs to leverage these data presentation methods to highlight their performance. Further, making full use of these technologies demonstrates to potential investors that a GP is savvy enough to perform in a tech-driven world, and spending the bulk of their time on making the best investment decisions, rather than fussing with outdated and inefficient technology.
After returns and liquidity, LPs are also looking at the downside of a GP track record. This includes Default, Loss, and Write-off Rates, as well as Recovery Rates; in other words, LPs want to see a GP’s ability to salvage value from an underperforming portfolio company. That’s not the end of it, however. LPs also want to look “under the hood” of GP deals—they want to understand the operational performance of portfolio companies. By using the Operating Analysis module in the CEPRES Platform, GPs demonstrate an understanding of the importance of Value Creation, Deal Pricing and Financing Structure, and Operating Growth for their due diligence. Unlike the Private Equity Investing world of yore, modern, data-driven LPs are paying ever closer attention to the underlying drivers of returns and risk, and thus holding GPs to account for the “Investment Strategy” stated in the PPM.
A GP that proves its appreciation and understanding of sophisticated LP due diligence will develop a better rapport and is more likely to build long-term relationships with institutional LPs. Bear in mind that LPs always think from a portfolio construction and asset allocation point of view, so even if your track record is strong in terms of returns, liquidity, loss, default, and operating metrics, investors still won’t be convinced until they see your outperformance and risk-adjusted returns relative to other asset classes and/or investment opportunities. The best way to inspire confidence in your potential investors is not only by being the best at what you do, but by proving it with data, technology, and an intricate understanding of what LPs want and expect from GPs.
CEPRES for GPs
GPs can leverage insights and expertise accumulated by CEPRES over the years, as well as unparalleled technology. With a stellar array of interactive and multimedia tools, GPs on the CEPRES platform can make a strong first impression by presenting their portfolio in a way that speaks to the modern LP.