LPs look for verifiable track record, spinouts in first-time funds: survey

  • LPs like spinouts, verifiable track records
  • Growing appetite for specialized investment strategies
  • One LP wants to see a 3x multiple return

When limited partners want to back first-time managers, they look for teams that have verifiable track records and spinouts by executives who have worked together, research from placement agency Probitas Partners shows.

Probitas surveyed 98 institutional investors on various issues in the industry. On first-time funds, 84 percent of respondents cited attributable track record as the most important factor in backing a first-time manager. Second is LPs focusing on spinouts of teams who have worked together, the survey said.

A U.S. respondent to the survey commented that to gain his attention, a first-time fund needed to have at least a 3x gross-multiple track record.

Other factors: 39 percent of LPs will look at first-time funds with experienced executives who’d never worked together. The same percentage will consider niche-focused strategies, the survey said.

Meanwhile, another LP survey, Coller Capital’s winter 2017-2018 Barometer, found LPs increasingly interested in backing specialist strategies. More than a quarter of the 110 institutional-investor respondents to the Barometer planned to shift more of their investment portfolios to single-product specialists.

LPs in recent years have opened up to backing first-time funds, pushing first-time fundraising to strong levels. Part of this dynamic has to do with the quality of new teams being formed, many of which are known PE executives and experienced operators.

Buyouts compiled a list of 50 new funds, mostly first-time funds and spinouts. A portion of those funds were formed by a private equity executive and an operating professional with experience in a specific industry.

One such example is Astra Capital Management, which was formed by Kevin Beebe, former group president of operations at Alltel Corp., former Carlyle Group executives Mark Johnson and William Kennard, among others.

Action Item: Check out Probitas’s survey here: http://bit.ly/2nBnbWk

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