Data and due diligence to help GPs thrive

IK Investment Partners: Best Fundraising Firm, Mid-Cap Buyout (fund size >USD3 billion)

Compiling disparate forms of data to provide a clear picture of fund performance and offer information of value to those who require it will be key to succeeding in the 2021 private equity (“PE”) market. Also, in an environment of remote working, general partners (“GPs”) need to facilitate comprehensive virtual due diligence exercises to help limited partners (“LPs”) navigate the uncertainty.

“The Coronavirus pandemic (Covid-19) highlighted the importance of GPs having deep sector knowledge, expertise and awareness in the sectors they invest in,” Alice Langley, Partner, Investor Relations, IK Investment Partners comments. “With significant uncertainty around the long-term effects of the pandemic on the global economy and businesses alike, having a comprehensive understanding of what recovery might look like for businesses within a specific sector, will stand GPs in good stead.

“Having this level of data and insight enables firms to utilise any opportunities as well as mitigate risks by building this into their value creation plans. At IK, we invest across four main sectors; Business Services, Healthcare, Consumer and Industrials. Having deemed this as a sensible approach for many years, Covid-19 simply supported our thesis of investing in businesses within non-cyclical industries.”

The pandemic also forced an acceleration of digitisation as the new normal saw GPs and LPs move to remote working and virtual due diligence. Langley notes: “I anticipate digitalisation to be high on the priority list for PE firms with the aim of harnessing technology to streamline operations for themselves and their portfolio companies. At IK, we adopted the use of platforms such as Microsoft Teams, Zoom and other video conferencing software to keep in contact with our employees, investors and portfolio companies. For the first time in IK’s history, we held our Annual Investor Meeting and conducted fundraising virtually. We are also placing increased importance on digital marketing activities.”

Conducting due diligence virtually has been one of the primary challenges for both GPs and LPs. Langley discusses the implications of this development: “Historically, conducting due diligence, for the most part, has been done face-to-face as it allows for more transparency, authenticity and the increased ability for LPs to understand the dynamics of the team in which they are putting their trust. This determination is more difficult to do virtually.

“As GPs, we have seen a rise in existing investors making decisions to strengthen existing relationships by investing more and staying away from those they’ve not yet met. Despite the efficiency virtual due diligence brings, it still remains a challenge for new investors to become comfortable with a fund manager unless they are able to meet in-person or on-site at least once.

“To tackle this, it’s important that GPs provide a safe way for LPs to carry out comprehensive due diligence whilst there is still significant uncertainty surrounding when we might return to some kind of normality that resembles the past. Being available to help and providing accurate information as well as detailed reporting will stand all GPs in good stead.” 

This article was first published in Private Equity Wire on 6 February 2021.