More dollars are being allocated to PE firms than any other asset class today – bringing with this more fund formations, increased competition for deals, and unparalleled regulatory and media scrutiny. There are higher expectations for investor relations and communications professionals living in the new world of continuous fund raising.

The goal of CP Alternatives is to bring together viewpoints and best practices from the community of communications professionals in the field charged with current and potential LP relationship building and managing the diverse set of influencers (the media, brokers and industry analysts) which affect the communications environment.

Building an Investment Brand: Lessons Learned from Public Companies

As Private Equity Drives to Differentiate, PE Communications Pros Can Learn a Lot from Public Company IROs in Creating an Investment Brand

Effective communication in the financial services industry is essential. Good communication helps attract and retain loyal, long-term investors, build management credibility, and ultimately lead to superior asset valuations. Over the past 30 years, investor relations have developed as a key function in public companies to communicate with equity and debt investors. The investor relations officer, or IRO, is now a vital position in a public company, most often reporting to the C-Suite through the CFO, with regular interaction with the Board as well.

The importance of (and investment in) this role often has not yet translated into the world of private equity. Historically, PE firms have not had to develop a sophisticated investor communication function. Bain’s 2015 Private Equity Report, however, indicated that the times are changing. “The maturing PE industry finds itself in the throes of ongoing generational change as PE firms evolve from the charismatic leadership style of their founding partners, who are now aging into retirement, into the dynamic institutions that they will need to become to carry on their legacy”. This aging dynamic is being exacerbated by the public’s growing distrust of PE firms and how they make their money – and the increasing regulatory call for additional transparency in Washington.

While the world of the public company the IRO can look so much different than that of a private equity officer (quarterly guidance, shareholder activism and sell side management), the essence of a good financial communications program to help differentiate the company is the same – focusing on a core group of critical investors, maintaining transparency in good times and bad, and constantly encouraging senior management to think more deeply about how the firm is positioned best to attract and keep investors who believe in the firm’s strategy, e.g. a company’s “investment brand”.

A few tried and true rules that are transferrable to the private world:

  1. Define an investment narrative for the firm – Brand it, benchmark against it and make sure partners and employees know it well. High-value portfolio companies have their pick of funding sources, and LPs are narrowing their focus to firms whose strategy and execution are becoming more important than the name of the last partner from Wall Street they recruited. Make the message accessible to influencers and the general media so that others are helping to build your brand for you.
  2. Manage headline risk so as not to penalize the brand – With headlines like “Private Inequity” and “Keeping Investors on a Need to Know Basis” in the New Yorker and New York Times, it is clear the media is mainstreaming stories about a few bad actors in the industry. (Public companies have experienced this for the past decade.) The right strategy in this environment, paradoxically, is a pro-active media strategy to keep firms out of the headlines and manage communication effectively when they get in. Make sure key media can differentiate your firm’s specific niche from others in the industry and pro-actively engage with reporters enough on background that reporters know when to include your firm in a roundup story and when not to. And, if there is a problematic investment in your portfolio, don’t ignore a reporter’s call or say no comment. Address the issue pro-actively with the goal of making sure they have the facts straight and access to additional information that might make them delay or minimize the issue related to your company in the story.
  3. Use thought leadership to extend the investment narrative and brand build – One of the most effective ways to extend a firm’s brand and build credibility by showcasing its top notch investment team is thought leadership. Having partners write or be interviewed on how current market conditions impact their investment decisions, publishing specialty research or repackaging speeches from industry events can be showcased on the website, sent to LP’s or leveraged for reporters interested in profiling the firm. These materials can also be a great way to showcase top talent to the media and other influencers without committing them to time consuming interviews and industry event participation.

Ultimately, the goals of the IRO and private equity communications professionals are the same: create and define an investment brand for the organization that outlines a clearly differentiated strategy, a commitment from management to transparency and good disclosure and is benchmarked enough publicly for shareholders and LPs to believe the management team is delivering on its promises.