How Managers Gain Access to Consultants for Allocations

The year of 2021 was the most productive year for private equity funds of all time, and the amount of demand was outstripped by 2x. Last year was the strongest year in terms of fundraising across the private market asset classes. The year of 2022 is seen as a year of a transformation for private markets, hedge funds and digital assets.  

At the recent Context 365 Miami Conference, held at the end of January, a session moderated by our own Stephen Mazzotti titled “How Managers Gain Access to Consultants for Allocations,” featured insights from the following panelists:

David Fann, Partner and Vice Chairman, Aksia
Michael C. Wright, Senior Vice President, Segal Marco
Chris Shelby Jr., Director of Private Markets, Verus

The panelists shared their views about what they are currently seeing in the market and their capital market expectations. A significant volatility, correction of the public markets and overexposure of private equity were just a few of the important topics discussed by the panelists.

The world and the marketplace change very quickly, and therefore consultants are closely monitoring and incorporating into their capital market assumptions many variables, e.g., the supply chain, GDP growth and rising interest rates and inflation.

In addition to private markets and hedge funds current opportunities, the panelists expressed their views on the status of investments and capital allocations into digital assets. In the venture space, with the development of different technologies, market capital has increased tremendously and managers and consultants are certainly gaining additional traction in these areas.

“It is certainly something that we’re going to continue to spend time focused on and understanding where and when the right opportunities will create themselves,” Mr. Shelby said.

The panelists also discussed some of the fund managers’ and consultants’ views on the market. The bifurcated market between those that have a lot of sensitivity to interest rates and those that have more of a long-term perspective are going to be affecting consultants’ views.

“Early/mid last year, they started the rotation on the equity side, from large cap to mid and small cap, and out of the tech heavy sectors to some of the more value-oriented sectors,” said Mr. Wright

The rotation from more traditional asset classes into private asset classes is expected to continue in 2022. Allocation of capital will be more favorable to those managers who have demonstrated their ability and their skills in identifying and creating platform companies that are better when they exited those investments than when those were acquired. As opposed to the fund managers and consultants who worry about the cost of the investments, the effects of inflation, rising interest rates, etc., their clients are worried more about valuation in the private markets.

The question about how managers gain access to consultants was actively discussed. “The consultants, and this is research, this is field consultants, this is anyone within the organization, this can be the top or the bottom, they have to know you exist,” Mr. Shelby said. “They have to have the conversation, they have to have shared interest in the strategy, in the business and ideas, identifying that similarity. I think it's very difficult. It can be very difficult to do but having our conversations and ensuring that they're with everyone, not just the perceived decision makers, I think that's a great first step that every manager should take to gain access.”

The panelists couldn’t stress enough the importance of the ongoing interactions, continuing dialogues, cultivating, and developing that relationship over time is imperative. “Investors have to know you, investors have to like you, and they have to trust you. Your story has to be consistent,” Mr. Fann said. Given the competition and the number of managers on the market, nowadays, it is harder and harder to obtain that capital, displacing someone who is already in that incumbency is typically very difficult. Mr. Fann added, “So you’ve got to be likable, you’ve got to be trustworthy, and you’ve got to really have phenomenal leaders” in order for the manager to be considered and the consultant to be able to talk about them to his client.

A demand for co-investments on the private equity side, as well as private credit, was named as one of the important elements to position funds in front of prospective allocators. Listening to the clients, understanding the funds, their asset classes, strategies, track records, uncovering the weaknesses and strengths were also considered as important tactics for properly positioning the funds and for conveying the right messages to the prospective allocators.