How to Make an LP Friend
Ask A CIO #44
What would you say is the weirdest thing about pharmaceutical ads? The bizarre visual non sequiturs? The nonsensical names?1 The extensive lists of side effects that the narrators speed read through, where occasionally, the side effects are also the same as the ailments to be treated?
If we asked folks outside the U.S., they would probably say the weirdest thing is that we have pharmaceutical ads in the first place (apparently, the U.S. and New Zealand are the only two countries that permit prescription drug ads). Which is probably the right answer.
After all, doesn’t it seem strange that someone would see one of these gimmicky ads and then be inspired to request a prescription from their doctor? But these ads are presumably effective. I mean, they must be, considering the sheer frequency with which we’re all subjected to them.2
I sometimes have similar thoughts about cold marketing emails from managers. Don’t get me wrong, many cold outreaches are thoughtful and considered. But others can be so generic, or outright off-putting, I have to wonder how many LPs actually respond.3
Which leads me to this week’s question, which I’ve received often in various forms.
How should GPs approach LPs? And how should GPs continue to engage an LP to build the relationship?
The first question – how to approach LPs – is relatively straightforward, though not necessarily easy. From a tactical standpoint, the first step is identifying the right contact within the investment office.
At a smaller investment office (e.g. four or fewer investment professionals), all contacts are relevant. At a larger investment office, the best contact is likely a mid- or senior level investment professional. Larger investment offices are often organized by asset class or by public vs private markets, which will also inform the right point of contact for any particular GP. There are always exceptions, but for larger investment offices, the Chief Investment Officer is generally not the right contact.4
When it comes to the outreach, a warm introduction is obviously best, and one from another LP is most likely to cut through a busy inbox. Absent that, a polite email clearly tailored for the specific investor being addressed can be very effective. Keep it brief, with a brief summary of strategy and relevant data points. Ideally include a deck (please don’t make the investor ask, because they probably won’t). Did I mention, keep it brief?
I’ll preface what I’m about to say next with, this is purely my opinion, and not all LPs will offer the same perspective. Placement agents on the private market side and cap intro teams on the public market side are valuable intermediaries. They allow LPs to see and assess multiple GPs and strategies quickly and efficiently. These intermediaries vary in terms of their focus, and candidly, their quality, but they’re generally very good at curating introductions.
As for the second question – how to continue engagement and build the relationship – I think there are two factors to consider. The first is how to engage, and the second is how often to engage.
So at this point, there’s been an initial meeting or point of contact with the LP. The initial contact might have been a formal diligence meeting, chatting at a conference, connecting at a networking event, etc.
The goal at this point is to understand how the LP views the GP in terms of priorities. Really there are only two possibilities. Either the LP is 1) actively working on a manager search for which the GP is relevant or 2) the GP is not a near term priority. If it’s the former, the LP will actively pull information from the GP. If the LP is actively pulling information, the GP’s next steps should be clear.
If the LP is not pulling information, or the LP stops pulling information, then the GP is not a near term priority.
If the GP is not a near term priority, again, there’s likely two possibilities. Either the LP is 1) interested in monitoring the GP and staying in touch or 2) not interested because the GP is not likely to ever be a fit for the program. If it’s the latter case, the GP’s next steps should also be clear, as disappointing as that might be.
As long as the LP is interested in staying in touch, there’s an opportunity to build a positive relationship. And in my personal experience, good LP/GP relationships tend to be built over a series of both formal and informal touch points, where investment updates are formal touch points and pretty much everything else is informal.
In terms of formal updates, quarterly letters are helpful. Some GPs host quarterly conference calls and invite prospective LPs. And when market conditions call for it, timely market commentaries are generally appreciated. But unless a prospective LP is specifically asking for it, they’re probably not interested in a one-on-one quarterly diligence call. Maybe semi-annually or even annually.
Informal touch points are both valuable and variable. This is ultimately a people business, and getting these interactions right can go a long way toward building trust and respect. These touch points can be anything from hosting an information session for a group of LPs to provide a market deep dive or simply making a helpful introduction. Fortunately or unfortunately, there’s no magic formula here.
I realize that some GPs may be frustrated by what I’ve described above. Large, established LPs with mature portfolios just don’t add many new managers each year. New investments are often sought out to replace existing investments, so there’s also a somewhat arbitrary element of needing to be the right strategy, at the right time. But that doesn’t mean there isn’t plenty to do in the interim.
Thanks for joining this week, and as always, reach out with questions: askacio@ivyinvest.co!
See you in two weeks,
Wendy
Fun fact, the naming process is extensive, including global linguistic checks to ensure names aren’t inadvertently offensive in other languages. Pfizer has an interesting two part write-up on the whole process: Naming Medication: How Do Drugs Get Their Names?
At any rate, two Senators are introducing a bill to ban pharma ads. TBD if it succeeds this time – it’s not the first effort. But here’s hoping!
LPs might be guilty of sharing the most egregious ones from time to time.
I cannot emphasize this point enough. And if reaching out to an investment team member does not yield a response, cc’ing the CIO to elevate the outreach is rarely the correct answer. It’s pretty much a surefire way to land on an investor’s bad side.