It’s no secret. Raising capital for a private equity fund as an emerging fund manager can be a challenging endeavor.
From organizing your team, determining fund size, and sourcing deals throughout, general partners (GPs) are juggling a lot.
But amongst all of their responsibilities one thing GPs need to keep top of mind: nailing the pitch with limited partners (LPs).
In your first meeting with potential Limited Partners (LPs), it's crucial to ask the right questions to establish a strong foundation for a successful partnership. Here are five essential questions that emerging PE fund managers should ask during their initial meeting with LPs.
1. Can you describe your program so I can better tailor this conversation?
At the start of any first meeting, it’s helpful to ask LPs to take a few minutes to describe their program.
To make sure there is alignment right from the jump, GPs should learn the check size and tailor the pitch to this firm’s specific needs.
The LP's response will help you gauge whether your fund aligns with their investment criteria. The follow-up question about check size is essential to ensure that your fund's capital requirements match the LP's capacity.
In our LP Lens webinar series, Sheryl Mejia, Managing Partner, Steward Asset Management and Agata Rzamek Praczuk, Director, Emerging Managers Program, MetLife Investment Management share their insights on how debut fund managers should approach the first meeting.
2. What is the length of your investment process?
LPs often have different timeframes for their investments.
Some LPs may have more rigorous and well-established steps before they can commit capital, while others may have shorter or more flexible timeframes. GPs need to know the expected length of the LP's investment process to manage their expectations. The quicker you can establish these details, the better you can align your fund's strategy accordingly.
3. How often does your team commit to first-time managers?
Not all LPs invest in first-time fund managers. Directly asking this question lets the GP and LP in the meeting know exactly what kind of call this should be. Is this an LP who can participate in the first fund or is this a call to build a relationship that can lead to investments down the line?
Establishing credibility as an emerging fund manager can be challenging, but inquiring about the LP's history of committing to first-time managers provides insights into their willingness to take calculated risks.
Knowing their track record in this regard can help you assess your chances of securing their commitment.
4. What does the pacing program look like?
The pacing program refers to how quickly the LP plans to allocate capital to your fund.
This question is essential. Understanding their pacing program is essential for fund managers to manage cash flow and make investment decisions accordingly. Similar to question #3 about first time fund manager investment, this question provides insights into whether your fund's strategy aligns with the LP's overall investment goals and risk tolerance.
If it’s not covered thoroughly in their answer, a good follow-up question is “How do you construct your portfolio?”
5. How does what I've described in this call fit in with your goals?
This final question should come at the end of the first meeting. This should help wrap up a productive conversation and tie everything together.
This question allows the LP to articulate how your fund fits into their broader investment strategy and objectives. Their response will help you gauge the level of interest and alignment between your fund and their goals.
How Grata Can Help
The relationship between fund managers and LPs is built on trust and alignment of interests. Asking these five essential questions in your first meeting with LPs not only demonstrates your professionalism and preparedness but also ensures that both parties are on the same page. Understanding the LP's investment program, process, and goals can increase your chances of securing their commitment and building a successful partnership.
Grata helps play a part in the deal sourcing transparency and differentiation. LPs want to know what sets you apart and how you plan to find the deals that no other GP can. Grata is the leading deal sourcing platform that helps dealmakers find, research and engage with middle market companies. Set up a demo to learn more.
