On a fundraising panel at Buyouts South last week, David Turner, head of Guardian Life Insurance Company of America’s private equity investment practice, commented on what makes or breaks a meeting with general partners.
Moderator: What is the most important thing you want to see in an LP meeting?
DT: Number one, I care about the culture of the firm. I want to see the character and integrity of the individuals running the firm. It needs to be someone I can see myself being a partner with for ten years. That’s in addition to the inherent capabilities and background that shows you can walk the walk. Which is number two: the GP needs to get granular on deals within the first ten minutes of the meeting. I need to know things like why you chose the companies you chose, and whether you know how to structure a deal properly.
Part three is that you tell me about when things went bad. We’re going to ask about it anyways, so tell us immediately, “How did you fix the situation?” It’s better to be upfront about mistakes than to try to restructure the truth around the facts. Part four is, “Did you know where you were going to sell the company when you wrote the letter of intent?”
Mod: The culture of a firm seems pretty intangible. Can you narrow that down?
There has to be a fire in the belly. It most often happens in spinoff situations, in new funds, with individuals who maybe didn’t get to share in the full economics of their last fund, or they are putting up their entire net worth to show how much they support the effort.
Mod: Are you turned off by the use of debt?
DT: Debt is just central to the industry. We’d be kidding ourselves if we said we didn’t need debt. We’re going back to using debt and as quickly as we can!
Mod: Larger firms like TPG and Permira have cut their fund sizes. Is that happening in the middle market?
We had one mid-market fund that did not invest its fund by the end of its investment period. Throughout the the last year of the period, firm made the conscious decision to stay on the sidelines because they didn’t like evaluations. At the end of the investment period, we negotiated to pull out some of our commitment. We respected them for it.