Effectively managing your Limited Partner relationships is essential to your success. But as a GP, you’re perpetually juggling calls, emails, and meetings, so finding time to update your investors on your progress can often be challenging. Unfortunately, not every firm has the luxury of a dedicated investor relations team, especially if you’re just starting out.
Luckily, we have some tips about why it’s so important to have great relationships with your LPs, your role in that relationship, and specific points to help you maintain it.
Related Webinar: Seven Ways to Make Sure your LPs Reinvest in Your Next Deal
Why is a good investor relationship critical for your fund?
While inspiring to become as attractive as KKR or Blackstone, you and other smaller GPs and fund managers might encounter problems trying to forge new relationships and raise capital.
During long-term CRE investing, relationships between you and your LPs can (and should) last many years, even as roles and firms change. Therefore, treat your relationship as long-term ones, finding ways to consistently harness and nurture your investors (relationships), especially in a digital world. It can be your key differentiator.
When you learn to structure your regular LP updates and treat these network connections as your long-lasting relationships, it will support your reputation and future fundraising efforts.
Your role and responsibilities of a General Partner
As the general partner of a fund, you’ll raise, allocate investor capital and, and analyze potential deals. You’ll be held responsible for the outcomes, as you’ll be the one making the final decisions on where the fund’s resource pool will be dispersed, and when.
You will get compensated via management fees, carried interest, and capital distributed back from the fund’s deals. Essentially, your responsibilities are many, but they all revolve around nurturing your LP relationships.
Here’s how you do it while perfecting your responsibilities.
How to build and manage relationships with your investors?
Set clear expectations early on
Being synced with your investors, making sure you’re on the same frequency, or the same page is crucial. It’ll help you avoid dealing with confused money looking to pool out too early, and unwarranted bad reviews due to it. Make sure you clearly communicate your vision, investing methodology, scale and growth plans, and exit strategy. Setting these expectations can save disappointment and frustrations for both sides later on.
When a LP puts his money in your hands, he’s investing in your fund, but he’s mainly investing in you. He chose your return rates, but also your character, vision, and ideas. You are looking for strong LPs. Strong LPs will choose a strong GP. Nothing scares a LP more than a GP who’s constantly seeking direction and reassurance. Show conviction. Always.
Listen actively to concerns
Your investors want you to succeed, both because their money is on the line, but also because if they chose to work with you – they respect you. Show them respect back by actively listening to their concerns and by encouraging open, clear dialogue. This will help you learn about the risks they’re willing to take, and those they deem futile.
Strategize how you’ll add value
Many GPs can make good ROI for their LPs, but few can get great ROI and add extra value. And while every investor loves money, they value relationships more, as networking in real estate can win you deals. Your LPs know other LPs. If you go the extra mile for them, they’ll help you get your financing done, introduce you to their network – and by doing so, helping you build brand reputation organically.
Consider hiring a professional mediator.
Your LPs will come from diverse backgrounds. They’ll be from different countries and states, might hold different political views, and originate from different cultures. This might cause communication hurdles, and when things don’t go as planned, a professional can help. To maintain relationships, and avoid creating a bad name for yourself, avoid litigation against your LPs, even if things go south. Try hiring a mediator first, or an arbitrator as a last resort.
Communicate wins and challenges frequently.
In business, uncertainty creates hostility; hostility creates conflict; and conflicts results in delays, trouble, and losses. Communication is the most important factor in any relationship, especially in new business partnerships—where doubt is prevalent, and trust is hard to build.
But the truth is, most investors don’t want to know everything going on in your office. So, consolidate your update to a few relevant highlights and lowlights.
Highlights can include a few wins, like new partnerships, exciting deals or noteworthy new customers, recent major deals closed, or key leadership changes. Also, if poor portfolio performance or disappointing exits occur, put that in your lowlights report as well, as transparency is key. With your bad news, appearing strong and presenting alternate strategies is advised.
That said, investor reporting can differ from one company to another, but there’s one thing all LPs look for when hearing updates on their investments: KPI updates.
Present trackable information, like deals closed, ongoing, and initiated, alongside metrics about your portfolio of companies and their current valuations in a visually easy-to-understand manner. It should be presented professionally, but easy to understand.
Stay Connected On Social Media
The world has changed. In 2022, lots of influencing CEOs and VC money roams LinkedIn and Clubhouse. Social media is a prime way to keep in touch and build real, lasting relationships with potential investors.
Connect, comment, and collaborate with experts in your industry. Engage with their posts online and offer up your ideas on topics they’re writing about. Then, try taking those relationships offline and set up lunch meetings and get to know them on a personal level so they become more than a contact. It’s not going to change your network size overnight. This process takes time. But foundation for amazing partnerships will be built if you show them you’re interested in their work and keen to establish a relationship.
It’s also a wonderful space to stand for your ideals, voice your ideas, and create an organic following that will naturally brand you to the right prospects. Build a legacy of sorts leveraging the collective memory pool of the internet. If you don’t have time to do so yourself, you can always hire a virtual assistant/social media marketer/copywriter who can attune to your tone and do it for you. Make sure you’re staying in touch with your followers, gathering new ones, and staying up to date with this new reality of quarterly social trends.
Executing on this list will make you stand out as a GP, help you maintain relationships, and ease your fundraising process. We covered why investor relations are important, your role in the process, and delved into specific ways how to stand out while doing so.
Investing in commercial real estate can be risky. It is not a fit for everyone. While we aim to provide general information to help you better understand CRE investments, we are neither providing any investment advice nor advising for or against any particular investment.