As you may or may not have seen from our 2015 newsletter published in December, one of the key highlights for EMR’s IR team in 2015 was the rise in IR opportunities within the Private Equity (PE) space. We believe there are a number of reasons for this including an increase in the IPO pipeline.
So following this......the big question I get asked a lot by candidates is ..... “what exactly is the difference between publicly listed corporate IR and Private Equity IR”. So that inspired me to do some further investigations, speak to experts and draw upon my own experiences to try and highlight some of these differences, as well as similarities. Well, having been in corporate IR myself for 7 years I have a very good insight into what such a role entails. The objective of a corporate IR programme is to ensure a company achieves a fair market valuation, ultimately reflected in its share price, by managing expectations in relation to the company’s current and future performance. They communicate on the company’s business, its governance, financial performance and prospects.
Corporates listed on a regulated market in the UK are governed by the UK Listing Authority’s Disclosure & Transparency rules which stipulate reporting requirements to shareholders. Interim and annual reports, whilst predominantly report on financial performance, also include a significant update on strategic performance. When press releases are issued, they are done through a Regulatory News Service (RNS) and are then in the public domain – on company websites, social media etc.
Other responsibilities within a corporate IR team would include frequent reporting to the company board on matters such as movements in the share register, changes in share price, any sector news, highlights from analyst research notes and much more. Corporate IR teams also work closely with corporate brokers, they manage market consensus and have close relationships with equity research analysts. IR will also have a lot of face to face time with investors attending roadshows, often globally, meeting existing and potential shareholders.
Now looking at the private equity side, and what would be typical in an IR role within this space. Well the first observational difference is that an IR role within a private equity firm can have many names including client servicing, Investor relations, business development, fundraising; very often the roles are hybrid incorporating fundraising, Investor Relations and often marketing and communications too.
As a general, and simplistic overview, (for a closed ended fund) – investors are known as limited partners (“LPs”) and the Fund Manager is called a “General Partner” (“GP”). In short, the GP raises funds from LPs from time to time. Each Fund is used to create portfolio of investments which are then exited over time. The GP sets the investment strategy and is responsible for building the deal pipeline, completing all the due diligence on selected targets, executing the acquisition of investments and creating value and ultimately exiting from these investments. Once a new Fund is raised by a GP, the GP has a requirement to report on the fund performance for the investors.
Reporting is one of the biggest differences compared to the public companies as this is not regulated by a set of public laws. Instead it stems from the Limited Partnership Agreement which is the legal structure regulating the Funds and signed by GP and LPs. In addition, Best Practice guidelines, including quarterly reporting standards, have also been issued by membership bodies such as Invest Europe (the European wide Private Equity Association), BVCA (“British Venture Capital Association") or ILPA (“Institutional Limited Partnerships Association”). Reporting is usually done in the form of a quarterly report which is not in the public domain and is just distributed to the LPs. Contrary to corporate IR where the quality and in depth analysis of the corporate’s sector is part of the regular flow of information to its investors, PE firms are sometimes limiting their disclosure requirements to the strict minimum. Furthermore, there is often a very limited strategic update or the GP’s views on the market. In some cases, the report only contains fund performance disclosure, and is much more formulaic and sometimes done by fund accountants. Having said that, there are examples where PE firms are raising the bar and increasing the level of disclosure. There is no obligation to give equal information to the market – there is no consideration for materiality or disclosure obligations if one LP asks a detailed question and needs a response. There will be no press releases or RNS announcements, no presentations available on any website nor on any social media channels; effectively, the distribution of this information is very limited to LPs in the fund on a “Need to Know” basis.
Investor contact is also another key difference between the corporate and PE landscape. PE investors will often require a meeting with the Senior Partners in addition to the IR team. Whereas in corporate IR departments, IR will regularly lead investor roadshows with no senior management team present.
“If we see more movement of Senior Corporate IRO’s, I would expect Private Equity IR to increasingly reflect the corporate landscape. This would include looking at best practice, but also could see the IRO take a more active role in leading investor meetings.” Lorraine Rees, IR-Connect Ltd
The IR role within PE is also very heavily skewed to fundraising which is an important part of the dialogue between the IR teams and the investors; in addition to having strong financial backgrounds, professionals will have to have strong sales abilities and be expected to grow their own network of investors across the PE industry. The IR role sometimes involves working with placement agents, which have a wide remit to assist on producing due diligence questionnaires (RFPs), preparing investor marketing materials and finding new investors. There is also no share registrar work in a PE IR role – you have complete transparency on how much LPs have invested.
Having identified many differences, there are however similarities in the skill set between both IR types. Both focus on building and maintaining relationships with investors, and require exceptionally strong stakeholder management and communication skills. Roadshows, presentations to showcase the firm, preparing for and attending sector or company events and conferences is also part of both IR roles. And you will also likely be responsible for competitor analysis, benchmarking of the sector and working closely on the AGM in both corporate and PE IR.
"Whilst the investor engagement, at investor 121 meetings or conferences, is comparable in both roles on a strategic level, in private markets you are responsible and held to task for the full selling process. This includes the project management, documentation development and negotiation of terms, which in the public markets is managed by the equity capital market teams in investment banks on your behalf." Yvonne Baranyai-Alexander, IR Consultant
So whilst there are some obvious differences to the day job, there are definitely overlaps with the skill set and candidates can be transferrable between the two.
So what will the future hold for PE IR?
Whilst there will always be a divide between corporate IR and PE IR due to the different legal requirements, there is some evidence that PE IR is “learning” from Corporate IR in many respects.
Size and complexity will require more robust processes and in depth disclosures. The sophistication of LPs is increasing and as such they are more demanding more from GPs in terms of frequency and more detailed disclosures. With more investors in PE funds these days, it is likely that PE groups will need to operate more of an institutional IR programme with more processes and infrastructure around it similar to Corporate IR. These trends will result in adopting more of a tiered approach to investor interaction with well thought through planning of interaction with investors based on their needs and sizes.
“With the growing maturity of the Private Equity market, GPs would benefit from learning and adapting Best Demonstrated IR Practices and Processes used by the top Corporate IR teams" Marc Nahum, Private Equity Consultant.
In the US and in Europe, the PE market is sometimes reported to have reached a plateau with a very competitive landscape. The best GPs will be the ones who are able to articulate and communicate a clear strategy which distinguishes them from their peers. PE IR teams will therefore have to craft and integrate a Communications strategy as part of their IR and fundraising efforts similar to what is done in the wider Corporate IR market.
Social Media will increase transparency. Some GPs agree that they have a responsibility which is broader than a strict reporting to their LPs and that they should be more open and transparent about their activities and performance. Whilst acceptance of Social Media channels by GPs has been slower than that in the Corporate sector, as PE firms catch up, this will probably force them to disclose more information more regularly.
As more GPs also become publicly listed entities themselves there is also a growing requirement by these firms to learn and adopt the requirements of the public disclosures throughout their operations. “The engagement of an experienced corporate IRO is invaluable in helping the private equity firm transition into the listed space.” Lorraine Rees, IR-Connect Ltd
Therefore, it is very likely that PE IR teams will move up the curve, closer to a corporate IR programme, provide more clear and consistent messaging, communicating more strategic information and a consistent look and feel of reporting. This is what many investors want – and what should and will drive IR programmes for PE firms.