It surprises me how infrequently people move from corporate IR to private equity IR, and vice versa. Apart from instances where a private equity firm has a listed fund, the talent pools seem to largely remain separate. Although there are some differences, most notably around the disclosure of information which in corporate IR is highly regulated, I would argue that many of the core skills are transferable. So I thought it would be useful to explore some reasons why this might be the case, and debate if there are more similarities than one might expect.
Before we look at the day-to-day activities of the two teams, it’s worth clarifying some differences in terminology.
Firstly, the IR function within a private equity firm might actually be described as something completely different e.g. client servicing, fundraising, or business development.
Secondly, whilst corporate IR may describe its investors as either ‘retail’ or ‘institutional’, private equity firms call their investors limited partners (LPs). To simplify and summarise the role of the Limited Partner (LP) is as follows:
- A limited partner is an investor who provides capital to the fund but has no active involvement in the daily operations of the fund.
- An LP’s liability is limited to the amount of their investment, and they are not personally liable for any debts or obligations of the fund beyond their investment.
- An LP also has limited control over the investment decisions made by the fund, and their voting rights are confined to specific matters such as changes to the fund’s partnership agreement or dissolution of the fund.
Another private equity term that will be encountered is the General Partner (GP). A simple summary of the role of the GP is as follows:
- A general partner is the active manager of the private equity fund and is responsible for making the investment decisions, managing the fund’s portfolio companies, and raising additional capital for the fund.
- A GP is also responsible for the administration and governance of the fund and is required to act in the best interests of the fund’s investors.
- A GP has unlimited liability for the debts and obligations of the fund, and their personal assets can be seized in the event of any financial losses or legal disputes.
- General partners have typically earned management fees as a % of fund assets as well as a share of fund profits called carried interest.
- A GP has control over the investment decisions made by the fund and has the power to vote on behalf of the fund’s investors on all matters related to the fund’s operations.
So, in a nutshell, the GP raises funds from LPs from time to time. That means the LP is the equivalent of the investor in a listed company. Continuing the comparison, the GP is then effectively like the senior management team of the listed company in that it sets the investment strategy and is responsible for building the deal pipeline, completing all the due diligence on the potential investments, and executing on their acquisition. Each fund then builds a portfolio of investments which it aims to add value to, for instance through operational improvements and organic or inorganic growth. This value is then crystallised upon exit which can be either through an IPO (stock market listing), trade sale, or secondary buyout.
As highlighted above, the most obvious difference is in terms of reporting and disclosure. Listed companies are required to comply with the regulations on disclosure including financial reporting and public distribution of announcements to ensure all investors have equal access to information. Private equity firms usually update their investors through a quarterly report, which is not in the public domain and is just distributed to the LPs. As a result, whilst a PE firm may make press releases, these are for marketing purposes rather than to fulfil a regulatory obligation. In addition, they may hold annual investor meetings – again, unlike the corporate results webcast which is publicly available, these are private events.
In terms of the day-to-day IR activities, there are similarities in terms of preparing management presentations that tell the story, responding to investor questions, drafting performance updates, but (simplifying the position) the private equity IR role varies by the fund lifecycle from fundraise to re-up, whilst the corporate IR tends to focus more on a results driven cycle (e.g. interim and full year results and roadshows).
As a result, the IR team in a private equity fund initially focuses is on investor outreach and fundraise prospecting. The next phase is due diligence using a data room and responding to DDQs (due diligence questionnaires). After that, the IR team turns to obtaining commitments. Beyond this, the focus turns to monitoring and continued engagement, probably the part with the most obvious similarities to the corporate IR role. And finally, re-up, which basically means encouraging LPs to participate in a follow-on fund.
Overall, this means the core IR skills including building and maintaining long-term relationships, delivering a clear and consistent messaging, offering excellent client service, all underpinned by a solid understanding of the business and financials, apply equally to both corporate and private equity IR. Hopefully this might inspire more cross-pollination of the IR talent pools!
IR-connect 