Private Equity
Private equity is different from real estate in that investors purchase homes and commercial properties to later sell for profits after a couple of months. Instead private equity invests into large corporations. This could lead to an increase in investment limits as the profits of the company are shared among the investors who invested in the fund. This is the reason why the business so lucrative for private equity firms, who earn profits from their fund management fee along with carried interest and a portion of each deal’s earnings.
As new managers are introduced to the market, they face an uphill task to raise funds that are fully funded as LPs are concerned about their performance and have reduced their allocations. A successful fundraising effort is dependent on the planning and preparation. Fundraising is a momentum game and GPs should be able to clearly define their path to reaching their targeted levels of capital committed prior to going out on the road. They should also be clear on the sweeteners they are willing to provide such as scale discounts as well as early bird benefits for first-movers.
Many PE firms employ placement agents to connect with LPs, and promote their funds. They are compensated with a fee that is set by negotiation based on the total amount raised by the fund. It is therefore important that GPs review their internal investor relations department before engaging a placement agent’s assistance.
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