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Communication, a valuable tool for managers and investors in Private Equity

The good times that the Private Equity (PE) sector is currently experiencing, both in Spain and at a global level, signifies an opportunity to add value for Financial Communication. Because PE is an asset with great competitive advantages: it generates constant business for managers or General Partners, high returns for investors or Limited Partners, and solutions for companies with financing needs and capacity improvement.

Characteristics

PE consists of very long-term investment in unlisted companies, both when they are in their initial phase/startups – in this case it is known as Venture Capital – or in more mature stages.  It is carried out in four phases: fundraising, investment disbursement, maturation, and divestment.

Investors are preferably institutional (pension funds, insurance companies, family offices, sovereign wealth funds, etc.), or large investors in the private banking segment. PE is considered an alternative asset, which brings stability to the portfolio, and yields higher than equities and fixed income.

Advantages and key figures

PE has a medium/low correlation with the economic cycle, so it benefits from low rate environments that lead to low returns in equities and fixed income. The optimal return/risk profile and its high diversification protect the investor against volatility. And as with traditional management, the expertise of managers is key in the choice of companies, sectors, or trends in the economy, with sufficient growth potential to materialize in attractive returns on divestment.

The figures show that the Private Equity is doing well in Spain and the rest of the world. According to the latest report presented by Funcas, in our country, since its introduction in the mid-1970s, investment commitments amounting to 44 billion euros have been executed. The expectation for this year is to reach 6 billion euros.  The sector has been growing at rates of 10% since 2000.

Globally, the volume invested reaches 2.7 trillion dollars, a figure that represents 3% of the valuation of the equities markets.  In 2018 alone, PE investment vehicles have raised $680 billion in fundraising processes, and there are $628 billion that Limited Partners can reinvest after the execution of divestments (known as dry powder).

The role of communication

During the fundraising stage, the investment policy, the maximum volume of commitments or the remuneration of the management team are established. The investor expects the fund manager to be successful, and the fund manager needs a certain amount of patience in order to have flexibility and to be able to choose the strategies, assets or sectors of the PE fund that will bring this success.  Therefore, there must be a complete alignment of interests between the two.

In this context, the role that the Communication can play is very important. In principle, as an informative tool of the advantages of PE, an asset still little known among the general public. And, above all, for General Partners to achieve the necessary alignment with the interests of Limited Partners during the initial phase of the investment.

General Partners know when, how much and how they will generate value in each vehicle they manage. Communication will help them strengthen brand awareness with the qualities that will solidify Limited Partners’ trust. At the time of divestment, the Communication will export the achievements obtained, and the strategies used, improving the corporate reputation of the manager.

In the case of Limited Partners, the Communication will help to position them among their clients, and in the sector, as selectors of the most efficient and effective managers in their task of optimizing investments. Managers who have achieved successful PE investments will be identified by Limited Partners as the best experts in designing and executing optimal investment strategies.

Finally, companies that have benefited from an investment in PE, can rely on communication to improve their brand image, transferring to their customers and potential public the improvements and new business strategies they have implemented thanks to PE.


Javier Ferrer
Proa Comunicación Consultant specialized in the financial services industry

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