Virtual AGMs & IR: Up in the air

Cue video. Fade in music, inspirational with a clear rhythm that builds gradually to a crescendo. Show clips that capture the full gamut of human achievement across science, culture, sport, and politics – from the first Apple Macintosh to Michael Jordan to Martin Luther King. And finally, US scientist Carl Sagan, speaking in “Cosmos: A Personal Journey,” his smash-hit 1980 TV documentary series: “For the first time, we have the power to decide the fate of our planet and ourselves…”

This is the opening footage from Founders Fund’s annual general meeting. It’s a model that has spawned countless imitators, many of them Chinese VC firms. And that’s who Unicorn Capital Partners was sending up at the start of its 2020 virtual AGM: flashy graphics, a booming voice championing Unicorn’s ability to identify disruption and push boundaries, and then Tommy Yip, the firm’s managing partner, interjecting: “Seriously, are we really going to do this?”

Unicorn’s video then takes a different path. Inspired by Vogue’s “73 Questions” packages, the camera moves around the specialist VC fund-of-funds manager’s office, offering tongue-in-cheek snapshots of different team members. At one point, it interrupts a videocall with Future Capital’s Mingming Huang who is good-naturedly strongarmed into naming Unicorn as his favorite LP. “I sent him an email about that, I thought we were his favorite,” says another LP who backs both managers.

While lighthearted, the video makes a serious point: these meetings are plentiful but homogenous. “We wanted to make sure we weren’t boring. We’re an LP so we have been to so many virtual AGMs this year and there’s much we can learn from them,” says Yip. “I don’t think too many people have put a lot of thought into it. VC guys go out and get deals done. The AGM is just something that happens once a year and if you’ve got good numbers, maybe you don’t care that much about it.”

Few managers have that luxury. An AGM is the only forum at which investors as a complete group can hold a private equity firm to account on current performance and collect insights into what might shape future prospects. Shifting from physical to virtual meetings due to COVID-19-related travel restrictions doesn’t change this reality, but it does redefine engagement. Video, from an AGM to a one-on-one catchup call, will play a larger role in investor relations. GPs must be thoughtful about how they utilize it.

“It’s fair to say that virtual events are here to say, even in a post-COVID-19 world, because there are so many benefits, from environmental impact to time,” says Jussi Saarinen, a partner and head of client relations and capital raising at EQT. “You can’t build relationships over video, so there will still be physical meetings and roadshows, but more of the follow-ups will be virtual.”

Setting a baseline

Physical AGMs are fairly standardized. There is a dinner and the next day starts early with a general briefing on the firm, an overview of the investment landscape, and snapshots of the deal pipeline. This is followed by the portfolio update. Depending on the length of these sessions, the size of the portfolio, and the presence of any add-on content, an AGM might conclude early afternoon or well into the next day. LP advisory committee (LPAC) meetings are held before or after the main event.

Content is interspersed with breaks, drinks, lunches, and dinners that allow for recuperation and informal networking. Still, timekeeping was a concern even before COVID-19 took AGMs into the virtual realm. LPs routinely complain about meetings that drag on interminably, with little structure, presentations that say everything and nothing, and supporting materials that offer no context.

In a previous interview with AVCJ, Sam Robinson, a managing partner at family office North-East Private Equity Asia, described his ideal AGM as follows: a portfolio update fund by fund; a slide detailing the holdings of each fund, including capital invested, capital realized, and current valuation; unrealized companies classified as superstars, strugglers or inbetweeners; and further assessment of the outperformers and underperformers. It takes half a day.

Asked what he wants from a virtual meeting, once again Robinson stresses the virtues of being concise: presentations by portfolio company CEOs, if included, should be shorter and fewer in number; sessions on sourcing and exits can be brief – “It can be 10 minutes, I just want a sense of how things compare to normal, what are three deals that look likely to close,” he notes; broader content such as speeches by economists, and certainly anything light and more entertainment-related, are best excluded. “A virtual AGM should be three hours or less,” Robinson asserts.

The first wave of meetings that dispensed with physical interaction, starting in February and March, were essentially the same as physical AGMs in terms of length and content. Production values were low to non-existent. Technical issues were commonplace. “A bit of a haphazard mess,” is one LP’s description. Since then, most managers have sharpened their acts. Brevity rules.

The professional film crew brought in to work on EQT’s global meeting in Stockholm in June advised the firm to keep it to one hour. Condensing what is normally a two-day in-person event into 60 minutes was deemed impossible, so they settled on two hours.

EQT’s communications with LPs have been unusually frequent this year due to updates on how the portfolios under different strategies and funds are being impacted by COVID-19. As such, the portfolio update section was shorter, with lengthier than normal information distributed in soft copy form. Meanwhile, general market insights, rather than being addressed in a standalone session, were woven into other content, such as the managing partner’s address and portfolio update.

Other GPs are taking similar approaches. One pan-Asian manager intends to reposition the portfolio update as more of a forward-looking presentation, drawing on the experiences of individual companies to deliver insights into different markets and industries. Given the climate of uncertainty, the aim is to offer LPs takeaways that can be applied broadly, on top of the standard briefing materials. A couple of portfolio company CEOs will participate in this, albeit succinctly.

In the same vein, Unicorn retained the macro overview segment of its AGM, reasoning that its predominantly non-Asian LP base would value on-the-ground accounts of China’s economic recovery and the implications of deteriorating US-China relations. Permira excluded the analysis of key themes that traditionally forms part of its meeting, but also kept the macro section.

“It can be useful to find out how the GP sees the current environment, especially when it’s a local fund,” adds Peter Lui, an executive director at LGT Capital Partners. “Anything additional to the quarterly reporting – not a rehash of the same charts and information – is good. One GP was very open in showing the pre-COVID-19 base case underwriting for deals and then the revised case underwriting and the rationale for that. It gave us a lot more insight into their thinking.”

Live or taped?

Once completed, most of the content from a virtual AGM is made available for review. Managers that want to stick to a longer format approach may prerecord the entire proceedings and upload them to the cloud as separate video files, enabling investors to dip in and out of content as they please. Some LPs say they playback at 1.5x speed to save time; others like it when GPs provide – and adhere to – a strict schedule or even bookmark the video, so they can jump to the relevant parts.

“Because we have such a large amount of content the AGM is usually a full day. We figured doing it live in a time zone where you try and accommodate people from the US, Europe and Asia just wouldn’t be practical. We decided to do the same kind of content as normal in pre-recorded video sessions made available on-demand,” says Richard Folsom, a representative partner at Japan-based Advantage Partners.

He accepts that some element of live engagement may feature in the future. Indeed, most LPs claim to be happy with prerecorded presentations, but they like a live Q&A, even though opinion is divided as to how readily this function is utilized. It might be the immediacy of the action is appealing, or if they are logging on at unsociable hours, they want managers to be putting in extra effort as well.

“We had a big debate about whether to prerecord, because obviously there is less technology risk when you do that,” says Chris Davison, a partner and head of investors relations at Permira. “Our view was that the AGM is an important point of engagement with investors, so we took that risk for the upside of giving people the chance to ask questions in the moment and see the team operating live. Our view was it would be a more credible and engaging experience if it were live.”

What Permira did not do was invest heavily in the production side, preferring to focus on content and engagement and have team members Zoom in from home. This was in early June, and there is a sense that the decision might be different if made today, given how virtual AGMs have evolved in subsequent months. Global GPs are generally credited for having slick less-is-more presentations and high production values, but this is filtering through the private equity ecosystem.

90 Seconds, a Singapore-headquartered cloud video creation platform that runs an outsourced network of 13,000 videographers and producers, claims to be seeing increased demand for AGM-related business, including from investment firms. This typically involves prerecording segments with portfolio companies and investment partners and editing them into multi-layer packages. The motivating factor is to offer something more than a Zoom call.

“It gives the virtual event a richness when you bring in people from different locations,” says Tim Norton, founder and CEO of 90 Seconds. “Even if someone is presenting on screen with a deck, it’s still a deck, you aren’t seeing the person. They are asking how they might do something that stands out, creates a bit of wow, knowing that everyone is doing virtual meetings, call after call.”

Room to innovate

Unicorn’s AGM was broadcast from the firm’s office, but a film crew was hired to do the setup and shoot. The presentation format was deliberately diversified – the portfolio review was a discussion between two people, a Q&A session featured six speakers – and two cameras were used, enabling the video to cut between angles.

“With some AGMs, the team does it like a conference call, it’s low tech and reception can be bad. You struggle to hear what they are saying. Having a professional video crew makes so much difference,” says Yip. “With a webinar, you have complete control, but you have to make up for the lack of interaction with the audience. When we were going through the deck, it was more like a conversation between myself and Kah Fai [Low, fellow managing partner].”

EQT’s virtual meeting involved a studio in Stockholm with two cameras and separate crews in London, New York, and Hong Kong. The initial plan was to run the event live, but a late decision was made to do it live to tape and recording took place the weekend before the broadcast. The firm’s New York investor day in October featured a live Q&A and separate streams for private capital and real assets strategies, allowing for more focused interaction.

“The technology is there. As we continue to use this new channel, I think we will see more innovation and customization that fits the clients’ needs,” says EQT’s Saarinen. “This could include more smaller breakout sessions.”

Numerous LPs would like to see versions of that, effectively chatroom-style exchanges where smaller groups of LPs can splinter off with a GP’s healthcare or technology team and see the faces of the people to whom they are talking. Some managers are said to be experimenting with this format, but the willingness to innovate is generally low.

Larger private equity firms, despite their superior resources, aren’t necessarily going to be the leaders in this. Smaller players can take advantage of often close-knit LP bases. “With only 15-20 LPs in attendance, you can have a more open and interactive format,” says LGT’s Lui. “Even then you need ground rules, so people don’t unmute themselves and fire in questions on the go. I’ve been on calls about co-investments that had a live Q&A and everyone was talking over each other.”

Further product and content innovation are essential given how a virtual format greatly extends a private equity firm’s reach. EQT’s AGM saw 1,200 unique user sign-ins, of which 520 were LPs, an 80% increase on the 2019 total. LPs participating in the New York event rose from 50 to nearly 200. Numerous pan-regional and country managers across Asia report increased demand for places in virtual meetings. “We’ve had a lot of interest from non-LPs who want to take part as observers,” says Jun Tsusaka, a managing partner at Japan-based NSSK, whose meeting is this month.

The bottom line is that, for now at least, LPs like virtual AGMs. First, investors can attend more of them because they aren’t constrained by budgets or missing one meeting because they are in transit to another. Second, there is greater flexibility as to who attends and when they consume the content. Rather than have one senior team member travel to an AGM, an array of junior staffers can logon as well, including those who don’t cover the market but want to learn about it.

The CLSA Capital Partners operation in Japan insisted on having every investment professional participate in the presentations at its AGM, a move praised by several LPs for giving exposure to the next generation. The same applies in the other direction. Having a larger number of relevant representatives participating from a single organization – including the younger contingent who might become the next generation of decision-makers – means there is greater familiarity with the GP.

“If I have a west coast meeting, an east coast meeting, and a London meeting, I can attend parts of all three and watch the rerun later,” observes Maurice Gordon, head of private equity at New York-based Guardian Life Insurance. Meanwhile, junior team members watch entire meetings, dividing up the portfolio of 60 buyout, growth, and venture relationships between them. “Some of them can’t even fly to California for a meeting, but now any of them can call in. It’s a huge improvement.”

The drawbacks are obvious. Less interaction means less accountability, to the point that managers could skate over problematic parts of the portfolio or turn the meeting into a pre-fundraise marketing exercise – going virtual means more prospective LPs can attend – with little immediate recourse. Perhaps more importantly, the informal exchanges with investment team members and portfolio company CEOs that many LPs rely on for real insights are lost. 

“Overall, almost everyone I know is positive about virtual AGMs. We love them, but we love them this year,” observes North-East’s Robinson. “The question is how long they can go on like this.”

IR overhaul

According to industry sources, some GPs – several based in India, the Asian country hardest-hit by COVID-19 – have canceled their AGMs this year with a view to returning in 2021 with full in-person meetings. But moving from physical to virtual and back to physical is not a long-term option. Every manager AVCJ spoke to accepts that AGMs, henceforth, will be hybrids. This is to accommodate LPs that have never been able to attend as well as those that don’t want to fly in every year.

One unforeseen consequence of travel restrictions is that investors have come to realize how much they can achieve through videoconferencing. An element of personal contact remains an integral part of due diligence – most new commitments made by LPs this year are going to managers they’ve met face-to-face – but parts of both the exploratory process and the ongoing oversight of portfolio GPs could go virtual. New Zealand Superannuation Fund, for example, has been forced to suspend its internal requirement that investment staff visit every manager on site at least once a year, drawing comfort from frequent video interaction.

While in-person meetings will undoubtedly return once practically achievable, many LPs expect to travel less in the future – and regular attendance at AGMs could become a thing of the past.

“If GPs continue to have the virtual option, maybe we can attend conferences in person once every couple of years,” says one Asia-based LP. “Some managers put on a big show and they want as many people to turn up as possible. If the next fund is oversubscribed, they might give you a smaller allocation because you didn’t come to the AGM, so you don’t want to take any risks. But I hope they will be okay with people ringing in.”

It should be stressed that this view is not shared by all institutional investors. Many see travel as an important and enjoyable part of their job, budget permitting. For those from far-flung locations, AGMs are one of few on-the-ground touchpoints with the manager and the broader dynamics of Asian private equity. These annual appointments often serve as the building blocks for tours of the region – and if they are LPAC members then the GP usually stumps up for a return air ticket.

Edward J. Grefenstette, president and CIO of The Dietrich Foundation, which has substantial VC and growth equity exposure in the region, is among those who expects to travel as frequently after the pandemic as he did before it. This is chiefly because of the value assigned to in-person interaction and opportunities to meet other local managers elsewhere in the schedule.

“In some ways, I’m delighted to hear that,” he says to the prospect of others cutting back AGM attendance. “I plan to be there in person, and when the Zoom call ends and I have dinner with the GP, there will be fewer people at the table. First, last, and always, private equity is a relationship business. Building and nurturing relationships remotely is not easy.”

Continuous content

The clustering of AGMs at certain points in the year – for example, May, September, and November in Hong Kong – is unlikely to change with the advent of hybrid offerings. A core of LPs will still attend in person, whether they are regulars or making an infrequent visit to re-underwrite a GP ahead of a fundraise. And country managers picking adjacent dates for AGMs is generally appreciated; one LP notes that he makes four separate trips to Australia because meetings are spread out.

However, the emergence of virtual engagement as an acceptable substitute for physical meetings is changing the dynamics of IR. This is already visible in approaches to AGMs. In-person events in multiple time zones is not new – Navis Capital Partners, for example, traditionally runs a full AGM in Kuala Lumpur and smaller gatherings in the US and Europe – but now some managers are slicing and dicing virtual meetings simply because they can.

India’s ChrysCapital Partners is making prerecorded segments of its portfolio review available to LPs at least one week ahead of a two-hour live AGM that will be heavy on Q&A. Lilly Asia Ventures, which predominantly invests in China healthcare, released videos on different aspects of its target market once a month for several months in the lead up to its annual meeting in October. Permira spun out the environment, social and governance (ESG) section of its AGM into a longer, standalone webinar.

The goal is to inform and educate, but also to maximize touchpoints with the LP community – complementing in-person communication rather than replacing it. Some IR executives that spoke to AVCJ haven’t done a face-to-face meeting with an investor in months. They can’t wait to get back on the road and retain faith in schedules that might involve visiting every LP at least once a year, regardless of whether a fund is in the market.

But there is a newfound appreciation of the role video can play in filling in the gaps, as well as an acceptance that the cadence of communications, which has risen during COVID-19, is unlikely to return to its former level. Call it quarterly review-plus, although there will always be variety in the frequency, format and detail of information disclosures requested by LPs.

“Where you have an existing relationship, keeping up engagement is valuable,” says Permira’s Davison. “I see investors in different parts of the world once or twice a year and I see them if they come to London. Now I talk to them more often by video, and I can take different people with me, including younger investment professionals who are of interest to LPs and who don’t normally do investor trips. It can also be refreshingly less formal talking on video than seeing them in their office.”

One-on-one briefings are an integral part of the content offering, but managers have other tools at their disposal. Norton of 90 Seconds claims that the key to having strong AGM video content is producing it continuously, not on a just-in-time basis. This material can be drip-fed to investors throughout the year. Video is not the only media that works; timely reports on industry trends can also strike a chord with investors.

“Some sponsors set up calls with their top people will give a view of what is going on in that segment of the market and those are good,” says Gordon of Guardian Life. “Other content is useful as well. If a GP distributed an update on SPACs [special purpose acquisition companies], for example, people might remember that when they fundraise again – ‘this group gave me a report on SPACs, which my boss was asking about a lot, and it was very valuable.’”

Cultivating that line of dialogue with LPs requires time and resources, so progress will not be uniform. Any smaller manager taking this approach would be selective regarding focus areas. And whatever does get produced, it must be impactful. Several investors note that they receive relatively little content that is truly interesting, and anything that doesn’t immediately grab the attention is likely to fester in their inbox alongside countless other updates and meeting requests.

Unicorn’s output includes monthly infographics that capture trends in China’s technology sector and intermittent reports that go into further detail on certain hot-button issues. Yip asserts that COVID-19 has changed the baseline on IR, with LPs looking for more information out of Asia even as they accept that in the future, trips to the region might not be as frequent as before.

“You need systems to keep LPs in the loop, not just calls once a quarter, but a combination of many things to maintain a high level of engagement,” he says. “Some managers might not be performing as well as you are, but they are overcommunicating at a time when LPs don’t mind overcommunication. They might be overcommunicating about their underperformance, but even that is better than not communicating at all.

 

SIDEBAR: Table talk - LP to LP

For many institutional investors, annual general meetings (AGMs) represent an opportunity to network with their peers. According to one Asia-based fund-of-funds executive, it’s the only reason to attend at all: most GPs offer little beyond what is stated in the presentation deck, while other LPs are a rich source of updates on the manager, the market, and any potential secondary transactions.

With the move to virtual meetings, it has become apparent just how much LPs rely on this information flow. “You get used to attending to certain meetings and you sort of know who is going to be there,” says Maurice Gordon, head of private equity at Guardian Life Insurance. “Some of the top managers only invite senior LPs and the best part of the AGM is talking to them.”

In the summer 2020 installment of its global private equity barometer, Coller Capital asked LPs whether they had enough interaction with peers. Three-quarters of respondents said they would benefit from more. However, picking up the phone is difficult.

“Unless you have a preexisting relationship, it’s a bit unconventional to call another LP out of the blue, although it can and should be done in certain circumstances,” says Edward J. Grefenstette, president and CIO of The Dietrich Foundation.

Those circumstances might include initial reference checks on managers ahead of a fund commitment. Communication trails off thereafter – except for exchanges at AGMs, which offer an environment conducive to informal dialogue.

“Whether it’s over dinner or drinks, you can talk about issues that might be consuming you and bounce them off each other in a very easy way,” says Hamish Blackman, a portfolio manager for external investment and partnerships at New Zealand Superannuation Fund. “You lose that by going virtual. Either we rely on our own convictions completely or we are willing to ring our peers more.”

Blackman is trying to be more proactive, reaching out to LPs that are in the same funds as NZ Super. A portfolio manager with a US public pension fund is doing the same, though it’s not ideal. “It’s hard to meet people in this environment, and when you do meet them it’s hard to build a rapport,” the manager says. “There’s a different honesty when evaluating deals with someone you know well.”

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• Topics
• Fundraising
• LPs
• GPs
• Greater China
• South Asia
• North Asia
• Investor relations
• Asia
• China
• India
• Japan
• Advantage Partners
• Permira Advisers
• EQT Partners
• LGT Capital Partners
• The Dietrich Foundation
• covid-19
• coronavirus