Communicating Through Challenging Markets: Considerations for Private Equity Managers

The last few years have been challenging for managers. A significant drop in exit activity has impacted returns and left private equity firms sitting on an estimated $4 trillion in dry powder, rendering the fundraising environment for leading investors increasingly treacherous.

Fortunately, the first half of 2024 has suggested that optimism may be warranted as we look towards end of year. Asante Capital’s Q1 survey of the fundraising landscape found that limited partners (LPs) are emerging from a challenging 2022 and 2023 into a 2024 marked by busier pipelines, greater activity, and increased investor confidence. However, the survey found that general partners (GPs) are still likely to spend as much time in the market as in 2023, and though there are reasons to be optimistic, the overarching landscape remains challenging.

In this environment, it’s more important than ever that GPs communicate with external stakeholders proactively and consistently, especially when it comes to LPs, who consume a broad range of media and content directly from several other managers. The right approach will consider the correct frequency of communications but, more importantly, what exactly managers are communicating, and how.

Be clear on your story and remember the Stockdale Paradox

Fundamentally, good communications are about storytelling. This must not mean fictionising or distorting reality, but rather finding key avenues to share with audiences your approach and emphasize the strategy behind your actions. Storytelling is important in good times, but becomes a necessary semi-defensive tactic in more difficult moments, allowing you to answer questions before they are asked and control the narrative.

In the case of the current private equity landscape, there’s no hiding. Media and investors know the market is challenging, and trying to pretend otherwise risks destroying credibility and crafting an unreliable and out-of-touch image. Instead, apply the Stockdale Paradox to your communications, which is the ability to confront facts while maintaining a positive outlook and tone that alludes to a sense that our state of affairs will improve. Identify opportunities to point to specific investment strategies and track records of performance as keys to success even in the most challenging times, and the potential groundwork for coming out of those challenging times on top.

Your approach should center around building trust through honesty. Managers that fail to do so, or attempt to build image through distortion of reality, risk derailing their individual recovery and their future legitimacy. Short-sighted approaches will leave behind long-term damage.

Manage expectations

When operating in more challenging environments, there is a tendency to respond through over-optimism. Optimism certainly has its place—both in prose and posture—but there is a balance that must be struck. Managing expectations is critical, and successful firms will employ both optimism and follow-through without risking overpromising and underdelivering.. Disclosing fundraising targets in the current environment should generally be avoided, and similarly , managers are advised to carefully weigh the short-term benefits and long-term risks of the disclosure of exit values.

Take the right opportunities

A good communications advisor knows when to say no, as well as when to say yes. Ensuring you’re speaking to the right reporters when the market is challenging is critical. There is little value in risk-heavy activity that could result in messaging misrepresentation, or worse, commentary being leveraged as part of a negative trend analysis. Lean on trust and existing relationships where possible, and prioritise opportunities with those who have a deep knowledge of the private equity industry and, therefore, are more likely to be accurate and thorough in coverage.

Conversely, when there are moments to celebrate, and positive news to highlight like a fund launch, close, or successful exit, it’s crucial to lengthen the lifespan of this momentum.

Proactive communication tactics, inclusive of relationship cultivation with key members of the media, provides the groundwork for shining in challenging times. LPs have more options than ever, and difficult periods separate the dynamic and strategic from the complacent and stagnant. Strategic communications allows you to share your story the right way.

Transparency and timing

With the above in mind, striking the right balance between transparency and timing is crucial.

Leverage scheduled and creative engagements as additive to the shareholder engagements required by law by devising quarterly calls, newsletters, and other forms of content to connect with shareholders more personally. Keep these content streams consistent even in difficult or dry times—a regular cadence of connection keeps your firm top of mind.

Educate, educate, educate

The M&A financing landscape has too adapted to meet the demands of the current macroeconomic environment. Firms have leveraged or revived strategies including NAV financing, expanding the use of CVs, and the increase in GP stakes funds. While not necessarily new methods, there remains a lack of public understanding about what these solutions involve and exactly how and why they are deployed, which has given way to misconceptions harmful to positive moments. Leveraging relationships with members of the media to establish your firm as a source of education, whether through background meetings or interviews, helps bring reporters up to speed in beneficial ways while bringing them closer to your organization. Firms have deployed educational tactics from webinars to teach-ins to position themselves as sources not only of news, but knowledge.

In difficult times, communications are challenging, but communicating those same challenges effectively and honestly is one of the most effective solutions.

Communicating the right way at the right time through the right mediums and to the right audiences separates those who will prevail from those who will fall behind. With elevated external interest and pressures across the private equity industry, managers who leverage several simultaneous avenues to highlight their story will stand out from the crowd and exit this slow period with momentum as others scramble to catch up.