Evercore: Some advice for potential fundraisers

Evercore’s fund placement team believes there is cause for optimism this year despite a tough fundraising environment in 2011, but warned GPs to focus on timing, terms and delivering on past promises.

Evercore’s fund placement team has made a number of recommendations to managers seeking to raise capital this year in its second annual ‘State of the Market’ report, seen exclusively by Private Equity International.

Dana Pawlicki, managing director and global head of origination and project management in Evercore’s private funds group, wrote: “We are certainly hopeful that the market will truly begin its long-awaited recovery. We take some comfort in the in fact that private equity continues to prove itself as an asset class, continuing to outperform both the equity and fixed-income markets and looking attractive on a risk-adjusted basis.”

He had the following advice for general partners looking to raise capital this year.

Timing

“Think long and hard about the right time to go back to market. Take an objective look at your portfolio, considering quantitative measures such as the percentage of the current fund invested, and your prior fund’s distributed value to paid-in ratio. In the words of one LP, “DVPI is the new IRR”. You do not want to be perceived as coming back to market too quickly when either you have plenty of capital left in the prior fund or have not yet returned a reasonable amount of scarce capital to current investors.”

Fund terms

“Compare your terms with those of competing funds. Evaluate whether it is worth keeping more aggressive terms in areas like deal fee “splits” with LPs. Also consider the possibility of more favourable terms for first close investors, co-investment rights and so on, as early momentum is crucial.”

Past Promises

“Give thought to softer promises you may have made to your investors outside of the fund documents, such as co-investment opportunities, reporting and less formal communications. Particularly with respect to investors who are trimming their portfolios, in a close call, this can make the difference between securing a re-up and not doing so. If there is still time to improve on any or all of these factors, prioritise this in advance of seeking more capital.”

Evercore’s ‘State of the Market’ report includes a number of contributions from managers including PAI Partners, Searchlight Capital Partners and Stepstone Group.