The US Market can be considered the “big bang” of Private Equity. It was there from the beginning and according to the Probitas survey interest in the US Middle Market and US Large Buyout funds from European LPs is still increasing.
European LPs are always searching for new US GPs to invest in, provided they match their needs regarding fund size and interested. However, policies, regulations, and the current travel restrictions have made it complicated for both sides to diversify their base.
On November 19,th IPEM hosted the US Digital Meetup. 10 GPs from the United States and 10 European LPs got a chance to chat about relations across the pond during the pandemic, what the election results meant for the US market and what each side is doing to improve communication on their end.
The session was informative, interactive and well… fun!
- The US Market, always attractive: Sophisticated and diverse
The uncertainty during the US elections has passed, the market is again stabilizing and continues to be as attractive as always. The deal front was never impacted, and businesses are starting to recuperate from Covid. It’s a good time to deploy capital in Private Equity.
The US market is sophisticated and therefore an educational point, especially in private credit, VC and growth. It’s appealing to LPs looking for diversification and larger allocations.
Diversification was a recurrent theme, constantly mentioned by GPs and LPs alike. GPs search to diversify their LP base and LPs to diversify their investment strategy. “You never know what can happen”
- New and stronger ways of connecting: virtual AGMs, video calls, interactive pitchbook
EU LPs have been able to strengthen relationships with existing US funds through more frequent communications, updates and being able to attend all virtual AGMs instead of having to choose. There has been a surge of creative and dynamic ways to contact LPs, whether it be videos or interactive pitchbooks, GPs have been pulling out all the stops to create new connections. Due diligence by video has become a thing of everyday life.
LPs have continued to invest with previous established partners, however refrained from taking risk on new partners or funds that might be put on hold because of Covid.
- US GPs face challenges: regulatory, ESG and new contacts/meetings
EU LP, especially institutional, have a hard time investing in US GPs, particularly with vehicles in places such as the Cayman Islands. There is a “chicken or egg” situation, an LP wants the vehicle set up before they agree to jump onboard, but the GP would like a promise before creating the vehicle. While larger funds may create vehicles in Luxembourg/Ireland or, depending on the situation, might even create a vehicle in the country of interest for European LPs, smaller funds are forced to go through third parties.
In terms of subject matter, EU LPs are much more interested in ESG and equality, than US LPs, meaning that US GPs must adapt.
Although virtual events and recorded sessions have helped, it has been hard for both sides to establish new, solid relationships based on Zoom and phone calls alone. Face to face meetings will always be preferred in an industry that relies so much on trust.
Thank you for your attendance!
- European LPs:
ALTAMAR CAPITAL PARTNERS
- USA GPs:
LEAD EDGE CAPITAL