There are hundreds of private equity firms who are considered "independent sponsors" or "unfunded sponsors" who do deals on a one-off basis with capital from long-standing limited partners including family office and high net worth individual relationships. Eventually, some of these sponsors will look to formalize their track record, return profile, and want to raise a consistent, steady pool of capital to invest over a five year time period.
Raising capital from limited partners can be difficult. First, you must understand the segment is highly competitive. There are new spinouts from top-notch investment banks and large private equity firms who raise a first-time fund ranging from $200 million up to $2 billion. They are highly sophisticated, have an impressive track record, and already have a team in place to make new investments. Not only that, but they have existing relationships with limited partners and have access to capital early on. Having a strong first closing and initial LP's who will back you is important to gain momentum in the marketplace and help your fundraise in the early innings.
So who exactly are limited partners or "LPs"? Limited partners can include endowments, pension plans, fund of funds, family offices, and smaller investment firms who look to give their own investors access to diversification across the private equity landscape. Many of these groups are looking for private investments in addition to public investments, which will hopefully negate risks around public market volatility, shocks, and potential declines.
There are various terms that are also to negotiate when raising a first time fund including a 2% management fee, 20% carried interest, 8% preferential return, a European vs. American waterfall, and other legal terms around Key Person Provision, GP Clawback, and potential extensions around investment period or fund life period. GP commitment is also an important measure to LP's to ensure that the GP has some skin in the game and are personally motivated to build wealth. Typical GP commitment is around 1.5-2.0% depending on the fund size, meaning if the GP is raising a $100 million fund, the investment team will personally invest $2.0 million in aggregate to the fund.
RiverStone Reporting understands the complexities of the General Partner and Limited Partner landscape and can help new or existing independent sponsors with raising capital. As your trusted placement agent, we have insight into the waves of capital that are raised in the middle market and how to best position you against your competitive private equity peers. RiverStone can assist your team with creating a differentiated investor pitch deck that can be utilized to pitch to LP's when raising a new fund. In addition, we can help create teasers, private placement memorandums, ESG policies, and other investment documents highlighting your track record, prior portfolio companies, and fund characteristics that will make your fundraise a seamless success.
The standard placement agent such as M2O advisors, Stonington Capital Advisors, Eaton Partners, Sixpoint Partners, and Park Hill, amongst others, generally charge significant fees of 2% for the capital that is raised in the marketplace. We can work with your team for a fraction of the cost, while reaching out to the same limited partners to give your private equity firm an opportunity to raise a traditional institutional private equity fund without starting out in the red. Our private equity investor pitch decks are top-of-the-line and sure to resonate with limited partners based on our decades of experience within the industry. Reach out to RiverStone at info@RiverStoneReporting.com today to learn more about how we can best help your firm raise capital over the long-term.