GPs - Do you know what makes LPs tick?
As you can imagine, the first thing an LP does when they get your PPM or marketing slide deck is to turn to the track record page and look at your gross and net IRRs and return multiples. Returns are extremely important to LPs, but returns are not the only thing they are concerned about. Over the years, LPs have provided feedback to CEPRES on what they want to see during due diligence on GP track records, and they have also requested new and specific features that they would like to see implemented in our SaaS analytics tool, CEPRES. Here at CEPRES, we have taken this valuable LP input to heart and continuously improve CEPRES to benefit both our LP and GP users.
What are LPs focusing on?
GPs can now leverage the insights and expertise that CEPRES has accumulated over the years. Let us share with you here some highlights. Besides for obviously analyzing returns and the attribution of returns, LPs are also focusing on liquidity, a particularly important parameter for an illiquid asset class such as private equity. The liquidity topic includes CEPRES features such as realization and DPI ratios, gross and net J-curves, investment holding periods and fund breakeven periods. After returns and liquidity, LPs are looking at the downside of a GP track record including Default, Loss and Write-off Rates, and also Recovery Rates: in other words, a GP’s ability to salvage value from an underperforming portfolio company.
Then there’s the LP deep dive on portfolio companies and looking "under the hood" of GP deals. By using the Operating Analysis module in the CEPRES, you demonstrate to LPs that you understand the importance of Value Creation, Deal Pricing and Financing Structure, and Operating Growth for their due diligence. Unlike earlier years, modern LPs are paying ever close attention to the underlying drivers of returns and risk, and holding GPs to account for the “Investment Strategy” stated in the PPM. A GP that proves its appreciation of sophisticated LP due diligence will have a better rapport and is more likely to build long-term relationships with institutional LPs.
Also remember that LPs think from a portfolio construction and asset allocation point of view, so even if your track record is strong from a returns, liquidity, loss, and default, and operating metrics perspective, investors might still not be fully convinced until they see your outperformance and risk-adjusted returns relative to other asset classes and/or investment opportunities.
CEPRES has a broad range of built-in Public Market Equivalents (PMEs) of many global market indices as well as Private Market Equivalents (PrMEs) which include CEPRES’ proprietary private market indices for categories such as North American Buyout, European Private Debt and Private Infrastructure. There is also the Power Analyzer module that allows you to prove your Risk-Adjusted Alpha outperformance relative to PMEs and PrMEs. CEPRES is engineered and designed for GPs to meet the demands of LPs, and to prove their strengths.
Getting the insights on LPs and their due diligence is the key to a successful fundraising.