Top 9 Points To Understand Before Committing To A Private Equity Fund Manager

Introduction

Private equity funds are considered alternative investments and may pose illiquidity. With maturities to realize capital can range at a minimum 5 years up to 10 years with relatively larger minimum ticket sizes for entry. Their primary goal is to target the companies that have the potential to grow with added capital, reformed management and produce healthy EBITDA. Private equity funds are one of the most famous means to diversify investments and hence are very popular among investors looking to add something with a higher level of certainty into their portfolios. For the right investment choice, an investor needs to choose the right equity fund manager.  The manager of private equity funds has core expertise in managing capital investments.

Here are the top 9 Points to Understand before Committing to a Private Equity Fund Manager:

1. Specific investment strategy and experience

What is the investment strategy of the manager? Is he experienced? It is of extreme importance that you understand what their approach towards investment is. The class of assets that they mostly target, the strategy is long-term or short terms, and for how long have they been doing this? Your investment goals should align with their strategies.

2. Results in previous years

Evaluate and understand which domain of assets or securities they focus on and how has that worked for them in previous years. Research online or get reviews from the investors that have engaged with them formerly. Assess the return that they have given to their precious clients and how consistent have these returns been.

3. Scope of services offered

When you are choosing a fund manager that is going to manage your investment assets, one thing that should be your top consideration is the scope of funds that are on offer. Does the manager provide all the services related to the management of your alternative investment? Do they give you access to all the information that you need to make an informed decision including prospectus and deck?

In particular, this may include:

  • Provision of documents pertaining to the private equity fund manager.
  • Advice on which fund would yield the best results according to the domain of their expertise.
  • Representation before regulatory bodies such as FINMA.

4. Fees and performance benchmarks

One of the more important points to understand when making your choice of private equity manager fund is to know how they are making money from you. Most equity funds will charge you on the number of assets that you want them to manage but there are other sources too that you must know. Like how much would they charge as performance bonuses or any other underwriting fee? Compare the options based on the fee they charge and relate their fee with their performance.

5. Overall reputation amongst industry peer

Talk to your industry peers and get their views about the private equity fund manager. Assess the kind of reputation that the manager has and note down both pros and cons to find the best fund manager for your investment portfolio. This makes you more confident about the choice that you are making and adds in the element of trust. It also helps for your Asset Manager such as Virobel to do their own due diligence and assess fees, capital calls if any.

6. Commitment toward investor engagement

Investor engagement is of utmost importance and any manager that does not understand that should be taken off your list. The manager or the team should be able to engage with the investors regularly, providing those updates about their investments and responding to any queries that they might have. This communication might include:

  • Update the investors about the progress of their investment and how their investments are performing.
  • Reports on the new opportunities in the market that can be capitalized and new steps that are being taken related to their investments.
  • The goals of the manager concerning the investment and the planned objectives.

7. Analyze the team

The manager might lead the team but the team that are boots on the ground are also very important. Each team have specialties whether they are turnaround members, meaning the operators that run the private equity business, the members that sit on the board and back office staff. Team is very important.

8. Other investors in the fund

One of the easiest ways to assess a firm and the manager is to look for big or familiar names that are subscribing to the same fund. When doing that, also assess whether they have investment goals as closely related to yours as possible. This will shorten your research and will help you make a better choice.

9. What are the managers investing in themselves?

  • Research into what stocks have the funds chosen for themselves, are they private or publicly listed entities.
  • The fact that they are investing in the market, even if it’s their portfolio and not a fund manager’s
  • Their ability to be successful in a long-term investment strategy is as opposed to being focused on short-term gains as many private equity firms do.
  • Determining who is fund manager that is right for your portfolio and what is fund manager experience that correlates to the funds performance

Conclusion

In conclusion we retain the following points in mind, the probability of you making the right choice of equity fund managers increases by multiple folds. Within our pool of relationships we can help introduce sound private equity funds that may interest you. Contact Virobel to learn more.