Private Equity
Contrary to real estate, in which investors purchase commercial and residential properties, and then sell them at a profit after the next few years private equity invests capital into large companies. This could result in a higher level of return on investment since the profits of the business are shared across all investors who invested in the fund. This is the reason why the business so profitable for private equity firms which earn a profit from their fund management fee as well as carried interest and a portion of each deal’s earnings.
As new managers join the market, they will have to face an uphill struggle raising a full fund. LPs are apprehensive about their performance and have trimmed their allocations. However, a successful fundraising effort is contingent on planning and preparation. Before embarking on a fundraising journey, GPs need to know how they can reach their goal levels of committed capital. Fundraising is an art of momentum. They should also have clarity about the sweeteners they are willing to offer such as scale discounts such as first-mover or early bird benefits.
No matter if the target is an investment vehicle that is new or a buyout fund, many PE firms turn to placement agents to help connect with LPs and promote their funds. These professionals are compensated by an agreed-upon fee that is based on the total amount raised by the fund. As a result, it is important for GPs to review their own investor relations department’s capabilities prior to enlisting the assistance of an agent to place the fund.