Private Equity: Investor Relations Overview
Investor Relations is critical in our dynamic market environment. It acts as a catalyst for key strategic decision making, viable communication, integrating finance and marketing between both, internal and external stakeholders of an institution. Moreover, as defined by the Corporate Finance Institute, “investors play a major and vital role in the success and growth of a company. Because of that fact, it is of the utmost importance for companies to maintain strong, transparent relationships with investors. This is where the investor relations department of a company comes into play”.
Introduction to Investor Relations
In the world of Private Equity, Investor Relations refers to the ongoing activity of effective communication from portfolio companies up to the investors, and vice versa. An effective Investor Relations allows for a better understanding of the business, a strong corporate governance, a beneficial financial and impact performance, as well as other non-financial performance measures such as brand recognition and goodwill of the company.
Investor Relations can take various forms that include, amongst others:
- Quarterly reports (with regards to overall performance of the portfolio companies or Private Equity Fund);
- Valuation reports;
- Board Meetings (inclusive of board observers on behalf of the investors);
- Annual Meetings of Shareholders/Investors;
- Site visits of the portfolio companies;
- Internal Control reports;
- Annual Reports;
- Press; and
- Investor Portal (with dedicated username and password).
For instance, constructive two-way dialogue during the implementation of Investor Relations and closing of deals for a Private Equity Fund is essential. Having a broader overview, the investors, Board of Directors, Fund Managers and Investment Committee will definitely be in a better position to analyse and make informed and precise decisions.
Strategy: Focused approach
What do institutional investors look for when investing in a Private Equity Fund?
While a suitable Internal Rate of Return and positive impact investing are essential elements, an effective Investor Relations is primordial for strategic and longer-term purposes. The need for mitigation of risks – due to volatility of the markets and regulatory framework – have made the investors more cautious and meticulous prior and during investment phases. Investor Relations is the panoptic of the investment community vis-à-vis stakeholders of the Private Equity Fund.
Knowing their investors’ needs and requirements is of the essence for Fund Managers to be able to build long-term investor relationships. For instance, growth investors will be more concerned about the long-term prospects and growth of a particular portfolio company. They would prefer to go for longevity and foreseeing greater Internal Rate of Return on the longer-term.
As Harry Nimmo, Head of Smaller Companies Equities, Standard Life Investments stated, “the group of investors to pay most attention to are the large, long only institutional investors with good cash-flow into their funds, a track record at investing in your company’s asset class and with a tendency to hold their investments for extended periods. They are the investors who are likely to be there for a company’s next round of capital raising. They are the investors who will add quality and respectability to your shareholder register thus encouraging others to invest”.
It is therefore important for Fund Managers and/or Fund Administrators to be well prepared in order to know what is expected from them. Indeed, investors are more and more meticulous and expect a high degree of consistency in the information and data to promote transparency and professionalism.
The key elements of effective Investor Relations include, amongst others:
- Strength of the executive team ;
- Valuable feedback among Fund Managers/Board of Directors/Portfolio Companies/Investors;
- Track Record of the Fund Managers/Committee Members/Fund Administrators;
- Shareholder activism;
- Production of timely and accurate financial and non-financial reports;
- Ability to address weaknesses/issues;
- Effective means of communication;
- Risk mitigation;
- Regulatory compliance;
- Ongoing training and support;
Benefits of effective Investor Relations
The prime objective of Investor Relations is to keep the investors informed – about market developments and key events that may eventually affect the Private Equity Fund structure – in a transparent, reliable and consistent manner. Ultimately, it contributes to achieving fair valuation. Some of the advantages of effective Investor Relations include:
- Maintain shareholder’s loyalty;
- Enhance long-term shareholder value creation;
- Ensure receptive capital markets for future financing at favourable terms;
- Lower the cost of capital;
- Build long-term credibility with the investment community;
- Reputation Management/Brand Building;
- Enhanced corporate governance;
- Qualitative reports;
- Media relations;
- Investor Commitment and transparency; and
- Functional team dynamics.
A Private Equity Fund with a well-established and effective Investor Relations certainly has a clear competitive advantage. Investor Relations’ ability to build strong relationships with investors and analysts, coupled with the strength of the executive team, are factors considered most critical to the success of Investor Relations globally. As Warren Buffett rightly said: “It takes 20 years to build a reputation and five minutes to ruin it.”
How can Sunibel help in your Private Equity Fund project?
Sunibel Corporate Services provides tailored Fund Structuring and Fund Administration services to Private Equity Funds:
- Fund Formation and setting-up of an Investment Manager
- Independent Directorship
- Acting as Company Secretary
- Accounting services and shadow accounting for existing funds
- Business and facilitation services and transactional support
- Advisory services
- Net Asset Value (NAV) calculation
- Audit coordination and liaison
- Tax computation and filing services
- Performance Fee Equalisation
- Tax administration services and tax advisory
Sunibel also provides Investor service, including:
- Maintenance of share register
- Attending to investor’s queries
- Subscription and redemption of shares, transfers and buybacks
- Compliance and AML screening on investors
- Following up with dodging investors
- Preparation of drawdown and capital call notices
- Regular Investor reporting and reporting to the Investment Manager