Remote work boosted LP communications, but may hinder new relationships, says chief NYC LP

Virtual work has allowed some LP staffs to work more closely together as they conduct virtual due diligence, according to a Buyouts webinar panel.

The coronavirus crisis has upended the way investment professionals do business, and David Enriquez, the head of private equity for New York City’s pension systems, believes some of those changes will be permanent.

“I think the pandemic is going to have a lasting effect on how we all work,” Enriquez said at a Buyouts webinar Wednesday. “There are going to be instances where doing something remotely is more productive than getting on an airplane and flying four hours to do a one-hour meeting… I don’t have a crystal ball. I just know it’s going to be different.”

Enriquez was joined on the panel by Sheryl Mejia, a partner at Steward Asset Management, and Jefferson Weston, a senior investment analyst at Arizona Public Safety Personnel Retirement System. They all agreed that the covid-19 lockdown and the resultant months of remote work have required investment professionals to discover useful efficiencies, namely the time and expense savings of virtual meetings.

“We’ve shaken up old processes and had a new look at it,” Mejia said.

“It’s definitely made people more tech savvy,” Weston said. “The days of Zoom meetings are just going to increase moving forward.”

More eyeballs

Enriquez sees additional advantages to virtual meetings beyond the savings on travel costs and protecting public health. “It’s allowed more eyeballs on our team to be involved in the process,” he said.

He cited a commitment three people were working on, to which other team members realized they could contribute based on their own backgrounds and contacts.

When it came time for a two-day virtual GP meeting, more members of the team joined in via Zoom than would have taken part in a physical visit.

“What that resulted in was a more informed perspective for our team, like different questions in diligence that may not have been asked by the original team,” he said. “In some ways, there are a few silver linings in this, in that we’ve been able to work more collaboratively internally on our side, and we’ve also just had more eyes on the opportunity, which is always a good thing.”

Weston said he found there were fewer distractions when working from home, and that his interns had been able to take a more active part than usual. But that did not mean in-person meetings were obsolete. “You really need to have face-to-face meetings or even on-sites at their site, you know, just to make sure it’s not just two people renting a broom closet,” he said.

Still, virtual meetings can play a role early in the commitment process. “It’s going to be a lot easier to use it and justify it than it’s going to be to get a group of people on a plane and send them to wherever,” he said.

“In a normal time, our process would dictate an early meeting and a very late meeting,” said Mejia, whose firm helps new managers set up their first funds. “The very early meeting we can easily get around, because that’s more about hearing the dynamics, hearing the tenacity of the team, hearing their history together, and there are so many great teams in the marketplace that we can get comfortable very quickly on that.”

More GP-LP communication

Lines of communication between GPs and LPs have been much more open over the last few months, something the panel hoped would continue. Weston said the lockdown forced his staff “to be more proactive reaching out to our partners and getting updates on the funds. I hope that out of this horrible environment we’re all in you have this really good habit that comes out of it afterwards,” he added.

Enriquez said he appreciated increased communication from GPs, whether in structured video-conferences with LPs being “very direct and transparent about the impact and how they’re managing risk,” or in smaller, less official communications with LPs one-on-one or in small groups.

“This is really the sort of black swan event where we as LPs gain insight into how our GPs manage risk and manage crisis and think about portfolio construction and investment strategy moving forward, whether they have to tweak it or whether they’re going to stay consistent in how they’re adapting,” he said.

In the coming months, though, there may be a need to start making new relationships with managers. How that goes remains to be seen, as most LPs have been working through pre-pandemic commitment processes.

“I think the challenge for institutional investors as we hit the bend in the road, and we work through our existing pipeline, as we look forward to 2021, is how many of those potential commitments are re-ups? How many new relationships do we have in there? And with the new relationships, have we had an ongoing dialogue? Or is it a completely virtual introduction?” Enriquez said. “I don’t think we’ve all figured out yet how to navigate that.”

Action Item: read more about the New York City retirement systems here.