InsightsKAP’s insights on private equity investor relations and fundraising
New year, new hire? What to consider when bringing on a fundraising / IR professional
Hiring Your First Investor Relations Professional
In a fund manager’s early days, the firm’s Managing Principals assume responsibility for capital raising and investor relations (“IR”). As our clients become more established, they often seek our advice on: a) the appropriate time to bring an IR professional on board, and b) how seasoned that hire should be. (We’ll discuss a third common question – how best to integrate the IR professional – in a future post.) The onset of the new year brings a new appetite for hiring, so we’re currently helping select clients strategize about their first IR recruits.
When to consider hiring an IR professional: Hiring an IR professional typically makes sense once a firm is on stable financial footing, has built a core group of loyal investors, and is receiving more upfront diligence and ongoing reporting requests than the existing team can handle. Often, these factors converge when managers hit the “established emerging” or “middle” stage of their lifecycle.
What level of seniority makes sense?
There are two distinct types of IR professionals: senior, outward-facing fundraisers and mid-level, in-house investor servicers. They add different types of value:
- Senior fundraisers: If a firm’s Managing Principals wish to offload some of the actual fundraising to an individual who can visit clients and lead meetings independently, they’re typically looking at bringing on a Managing Director or Principal who has road show experience and established credibility in the industry. Hiring a senior professional with existing investor relationships and a strong understanding of the firm’s investment strategy can obfuscate the need to engage a placement agent, particularly for domestic fundraises. This professional can also build out the firm’s IR function over time.
- In-house IR: Another approach is to hire a mid-level professional to respond to DDQs and information requests, compile content for quarterly reports, maintain the CRM database, and plan the annual meeting. When this more junior resource (typically a Vice President, perhaps a Senior Associate) is hired, the firm’s Managing Principals retain primary fundraising responsibility but have gained meaningful back office support. This hire is less expensive but requires supervision and training, often from the Managing Principals. In select cases, the mid-level could be developed into a senior capital raiser, albeit one without independent LP relationships.
Which professional to hire first depends on the firm’s budget and goals. If a manager has sufficient resources and wishes to free up the Managing Principals’ time, it may make sense to engage the senior capital raiser first, and let that individual hire support down the line. That said, there are three caveats to the senior hire approach:
- We sometimes hear managers say they hope to “buy” a rolodex by recruiting a professional with a deep network. While the capital raiser’s existing relationships will open doors and help secure initial meetings, they by no means guarantee commitments; LPs will ultimately underwrite the manager’s investment team and track record.
- Investors will still expect to get to know the Managing Principals, so this hire does not liberate them from investor meetings. Relationships with investors – who are your partners – should be nurtured over time by the entire team, not just the fundraiser.
- Senior professionals have less appetite for the back office grunt work that falls within the rubric of “investor relations,” so will likely draw on the firm’s existing associates and analysts to help with data and information requests.
Because the two types of hires serve different goals and require different types of support from the rest of the firm, we recommend fund managers discuss the most pressing IR and capital raising needs with their full team and develop consensus around their top priorities.