A recent report produced by BNY Mellon in collaboration with Preqin shines a light on how much demand there is among institutional investors for private equity and real estate funds. The report found that 44 per cent of real estate managers and 39 per cent of private equity managers expect their assets under management to grow by at least 50 per cent in the next five years.
Family offices (26 per cent) and public pension funds (25 per cent) are expected to be the main drivers of inflows, as they look to build long-term allocations and reduce their weighting on traditional market securities.
Ole Rollag (pictured) is the Managing Principal at Murano Systems, a disintermediary that sits directly between investors and managers to help both parties make a relevant connection. By asking questions that are specific to its fund manager clients, Murano not only improves the quality of sales pipelines but also help investors cut through the swathe of manager talent when looking to allocate capital.
Up until now, the majority of Murano’s clients have been hedge funds. But Rollag is now focusing on building the number of private equity managers on the platform to meet the significant level of demand being voiced by Murano’s extensive investor network.
“We have one particular private equity manager on our platform who has a short closure date for their fund. They are closing their fund in June, so we’ve not had too long to introduce them to potential investors but I can safely say that this manager has been inundated with investor reports – more than they can handle,” says Rollag.
Murano is quite unique in terms of the scope of interaction it has with investors. A 17-strong team in the firm’s New Bond Street office, London, have more than 150 conversations with allocators every day, throughout the year. “I don’t know of many other firms that have the same amount of conversations with allocators as we do,” says Rollag.
“Approximately 80 per cent of our clients are hedge funds but we also have a number of long-only and real estate managers that we work with. We have 30,000 allocators in our database. Over the past five years we’ve probably spoken to 15,000 of them. We have 7,500 regular relationships and the Murano model has become an accepted model within the industry.”
One might well ask, ‘If there’s so much demand for private equity funds, why would managers need help when it comes to raising assets?’
This is a legitimate question so a little more context is needed.
Whilst it is true that assets are flowing freely into private equity – in 2015 approximately USD288bn was raised by 689 private equity funds – the majority of inflows still gravitate to the largest, bulge bracket managers. Just like the hedge fund industry, the vast majority of middle-market managers have to fight tooth and nail to win new allocations.
As such, there is a very real, distinct need for PE managers to try and improve their sales and marketing strategy. In 2013 and 2014, the total aggregate raised by first-time managers was about 7 per cent.
Which is where Murano comes in.
Rather than relying on placement agents, which charge USD1mn for every USD100mn raised, Murano gives PE managers the chance to take greater ownership of the asset raising cycle, and bring it back in-house.
“Investor relationships are so important when it comes to building trust with investors, getting them to re-subscribe to new funds etc. Ultimately, private equity managers need to own those relationships. Does the economics of using placement agents work for all managers? Maybe not. One million dollars can go a long way. And what is it you are sacrificing for those costs? You’re not able to solidify investor relationships, to dig down and really understand their needs,” suggests Rollag.
We hear you
One can think of Murano as being an enabler, as Capital Introduction 2.0.
Over the years, it has successfully created a culture of listening to allocators.
This makes the whole process a lot more agreeable and efficient for a manager who becomes a client of Murano. By engaging with investors on a daily basis, listening to what their needs and investment objectives are, Murano is able to identify which managers would be potentially be a good fit.
The mistake that scores of managers make when vying for the attention of an allocator is that precious few will walk into the first meeting and say, ‘Please tell me about your business, tell me how I might be able to help. I’m here to listen to you, not to tell you how great I am’.
Murano does exactly that.
“We talk to allocators across the globe to work out where they are looking to allocate over the next six to eight months. We cover a range of points such as length of track record, level of AUM. Each question is different depending on the asset class. After that, we will ask the manager to come into our offices to talk about the strategy, ask them to walk us through the strategy and why investors should consider it, and indeed why they shouldn’t consider it.
“We’re not selling anything at the end of the day. We don’t represent any one client, we have no vested interests,” states Rollag.
One interesting statistic in the 2016 Preqin Global Private Equity & Venture Capital Report is that the amount of dry powder in private equity stood at USD755 billion in June 2015, an increase of 9 per cent on 2014.
What this reveals is that investor demand is arguably becoming too high, to the extent that PE managers are chasing the same deals. This is pushing valuations higher and making it more challenging to actually put money to work. Factor in that Sovereign Wealth Funds are beginning to construct their own internal investment teams and make direct investments, and the level of competition is clear to see.
What today’s seasoned private equity investor therefore wants is to find managers with original ideas that are operating on the edges of the mainstream. That have good track records and funds that demonstrate a good level of expertise, but which may not have the biggest AUM and, crucially, are able to put their dry powder to work.
“The mid-market PE funds are becoming quite appealing to these investors, they have a bit more of a niche offering compared to the large bulge bracket PE managers. They are looking for funds that are a little more off the beaten track, but still run by established managers.
“That’s where Murano’s platform comes into play, effectively acting as a match maker between investors and managers,” explains Rollag.
The number of reports that a manager receives will depend on the nature of the fund and various other factors but in Rollag’s experience with Murano’s hedge fund clients, approximately 40 to 60 per cent of reports result in a first meeting.
Then, all things being equal, the manager has a 5 to 10 per cent chance of getting an allocation.
“Every time you have that first meeting, so long as you do everything you should be doing with respect to follow-ups you should expect to close a deal after 20 meetings.
“Managers – both hedge and private equity – spend a significant amount hiring third party marketers and placement agents, going to conferences etc. Murano, by contrast, offers a cost-effective alternative. If we can get it right, and half the introductions we make turn into meetings based on the reports the manager receives, that’s great. We’ve done our job,” concludes Rollag.
To find out more, go to http://www.muranoconnect.com
