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Private Equity Funds: Why Your Investors Might Not Trust You, And How To Fix That

Private Equity Funds: Why Your Investors Might Not Trust You, And How To Fix That

April 15, 2021

Overview 

The financial industry is built on trust and whether dealing with new or existing investors, trust is a critical intangible asset for managers to maintain. Asset managers have two important objectives in their business – raising capital and deploying it effectively. 

While the latter can monopolize a managers time, the former evolves into relationship management – which can make or break current and future deals. Below are key reasons that investors may not trust a new or existing private equity fund manager and how you can help gain and keep it.

  1. They just met you… 

When raising capital in a new relationship it is helpful to point to experience, track record or investor references. Even with some combination of those to support you, if you are an individual or small team, including seasoned service providers and advisors is a great starting point. Top service providers do their own forms of due diligence on a client, which provides some level of assurance and investors are more comfortable that you won’t run afoul in key areas of execution. Choosing the right advisors – accounting, legal, and audit, among others – goes a long way to ease uncertainties for new investors and establish trust early on.

  1. Communication is key…

Far beyond following up with prospects, private equity fund managers need to emphasize proactive communication with new and existing investors alike because miscommunication (or none at all) is an easy way to erode trust. If an investor regularly calls you for an update, chances are that you might be lagging in this department. Accrediteds, family offices and institutions all have different expectations – set those expectations around communication when the relationship is formalized. Be sure to understand the various points of contact for each investor, so you know what direction information needs to go. If you are just starting out, consider scalability and set your own boundaries accordingly – a customized approach works for 5 investors, but not for 50 investors. Schedule and stick to update deadlines, have recent data to reference and most importantly understand the investors’ expectations to maintain trust. Also, consider an institutional-grade investor portal to communicate directly with investors. Many fund management softwares have an investor portal feature included. 

  1. Be on time…

This is not only true for appointments, but for the distribution of reports and taxes to investors. Among the requirements that individuals and institutions have during the lifecycle of a private investment, these are the least flexible as they materially impact their near-term finances and decisions. This is considered a fundamental part of operating, so regular delays or failure to execute ultimately reflects poorly on you and will lead to erosion of trust. Don’t make the investor’s accountant or tax preparer have to chase you. Ensure that operating data flows between accounting, tax preparation, and investor relations to ensure timely distribution of information.

  1. Be consistent and substantiate…

Pro formas will demonstrate a compelling case, but can grow stale in the minds of investors once capital is deployed. Using real-time data to analyze performance and 3 valuations has become increasingly important for operators and also changed the expectations of many private investors. If you are explaining qualitative changes or developments to investors, it is difficult to argue that no lever has been pulled on the quantitative side. Over time making this case can cause investors to lose trust or question your judgement. The better approach to build trust for private asset managers is to utilize up-to-date data for valuations and performance to better illustrate your story and justify your decisions.
Trust is a critical element of private investing and Tribexa’s core competency is empowering private equity fund managers to secure trust and focus on growing their business. Tribexa helps private companies and investors build trust by integrating needs with a comprehensive suite of offerings across accounting & finance, reporting, tax, and investor relations. Our platform is built on experience and combined with technology and support to make navigating these issues simple for clients.