You see them at every private equity conference. They stand in line clutching their business cards, waiting for that brief moment to make a pitch to an LP. If you’re one of those people, Urs Wietlisbach, co-founder of Partners Group, says don’t waste your time.
“My advice: Don’t grab me at a conference or in an elevator; there is no mileage in it,” he says. “You don’t raise money like that. The first appearance is wrong. Maybe we swap cards, but don’t do a pitch. You need to be well prepared ahead of a scheduled meeting.”
As for a formal meeting, “Your material must be first quality,” he instructs. “Be concise. Be open. Be clear. We see 120-page documents, but you need to show your quality, your edge, in the first two pages.” New funds must have a readily apparent edge. “There are hundreds of U.S. mid-cap buyout funds to pick from in buyouts, whereas an Asian Fund has it easier,” he says.
“We had one European VC in here today who is going to have a tough time raising a second fund,” he continues. “The first fund has not done well.” He makes one important distinction between U.S. and European fund-raising environments, saying that in Europe a fund manager can still raise money with a good concept, whereas in the U.S. it’s “only IRRs that count. That’s good and bad. In Europe we’re not just driven by a track record but on the promise of the future. It’s different than just being driven by the past.”
The fund-raising difficulties faced by emerging managers in the United States is due in large part to the fact that “big pension funds are afraid of doing anything wrong,” Wietlisbach says. “They have to hire a consultant. They have to hire the Hamilton Lanes of the world, because they don’t want the future liability of having said that [a client] should invest in something. That means that [U.S. funds] are driven entirely by due diligence or past performance.”
As for the pitch itself, Wietlisbach is blunt: “No bullshit,” he says flatly. “Everyone tells us that they have proprietary deal flow. No one has proprietary deal flow. Or they say they have this or that, but our investment professionals aren’t stupid. We don’t do business based on all of the buzzwords [that people pitching us] use.”
For new or emerging managers, he says, “At the end of the whole story you have to put the puzzle pieces together; everything has to match, to check out. Your positioning in the market matches your team. That’s one of the six points that we look at in evaluating a group: investment concept, management team, alignment of interests, track record, market positioning and deal flow.
“After that we put you into one of three categories. The first is a straight decline. The second is, Keep them on file.’ Maybe we meet with you and we decide not to invest this time around, but we like you, so we’re going to keep you in our top 250 list of managers that we track.” If you’re lucky enough to land in the third category, Partners will perform thorough due diligence and probably invest.
The best advice Wietlisbach has to offer those raising money is, “Don’t just come to see us when you’re raising money.” It’s better to drop by to say hello whenever you’re in the area meeting with a portfolio company or working on a project. Anything that gives the due diligence team an opportunity to learn more about the team at your firm.
If you’re willing to pay to play, you might take up Wietlisbach on his offer to consider buying your stake in your own fund. “If a general partner has a secondary position of his former fund, [he or she should] come and show it to us. If you sell to dedicated secondary funds it doesn’t help you. If you steer it to a primary investor like us we will follow your fund and the probability that we invest into your next fund is much higher.”
One final suggestion: Wietlisbach says his door is open for anyone who wants to pitch a good deal for Partners to co-invest in. “If you bring us a co-investment opportunity it gives us a chance to learn about your team, to see how you do due diligence, how you do a deal and to build a relationship.” And that can lead to Partners investing in your fund. “I know that’s a tough way to build a [new fund], doing a deal to build a track record with us,” but it offers hope to the emerging managers who are finding it so hard to get started. The good news is that despite having made mistakes [by investing in some] first-time managers, Partners is still looking for new funds so that it can participate in the long-term growth of emerging managers.