Active outreach key to middle-market fundraising – AVCJ Forum

“I sat next to one of my LPs at dinner last night, and she has eight AGMs just this week. So they have limited resources, and there are more and more managers,” said Darren Massara, a managing partner at Newquest Capital Partners. “For a GP who's out trying to raise capital, at any given time you're one of 2,000-2,500 PPMs [private placement memorandums] that are on a specific LP's desk.”

The problem is not so much that the middle market is unattractive to investors, but rather that particularly for foreign LPs it is hard to distinguish between a large number of firms with similar investment strategies and fund sizes. While GPs the top of the market have no problem with name recognition, those at the lower levels often struggle to make their case to potential investors.

One reason for the strain on LPs is that while Asia’s PE space has grown dramatically in recent years both on the GP side and on the service provider side, LPs have largely not grown to match. This leaves investors scrambling to keep up with the market.

“When you go to visit some of these LPs, they still had the same number of people working there that they did 10 years ago,” said Kyle Shaw, founder and managing partner at Shaw Kwei & Partners. “As a GP you have to be cognizant that you need to be able to help them get their job done on the LP side.”

Helping LPs in this sense means being proactive in providing the information they need about the GP and its fund before they ask for it and giving a clear explanation about the relevance of the information. Managers must also be able to demonstrate outstanding performance in order to keep their relationships with LPs who have many other choices for their investments.

One exception to the rule is Japan, where investors are showing increasing interest in middle market funds of less than $500 million, according to Shota Kuwaki, director at CLSA Capital Partners. A lot of this interest is domestic, with regional banks - looking for investments that can show reasonable returns in the face of zero or negative interest rates - becoming particularly active.

“LPs have been educated about the Japanese market, and they know it's not a high growth market overall,” said Kuwaki. “But at the smaller end of the spectrum there still are companies that have 20% EBITDA growth, so clearly there is still a fairly competitive dynamic in this part of the Japanese market. If you’re able to get the LPs to understand your story then you can get a decent fundraise.”

The AVCJ Forum is being held in Hong Kong on November 14-16. For more information, go to www.avcjforum.com.

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• Topics
• Fundraising
• GPs
• Performance
• Buyout
• Japan
• CLSA Capital Partners
• Shaw Kwei & Partners
• NewQuest Capital Partners
• AVCJ Events