AI in Private Equity: LP Fundraising
By Rob Cossins on the 18th April 2023Private Equity Artificial Intelligence
With overall available capital in decline, LP fundraising in Private Equity is tougher than ever. Here we'll explore how investor relations teams can use some of the latest technology to move that fundraising process along.
Limited partner (LP) fundraising is one of the most important parts of private equity, but it's also a lengthy and often opaque process. Private equity firms are increasingly turning to data to streamline raising capital from LPs. Through careful consideration of data on existing LPs as well as prospective investors, firms can target outreach more effectively, while building long-term relationships with investors.
AI and LP Investment Preferences
One main benefit of artificial intelligence is information collection, at scale. All the information exists to discover LP investment preferences, but it's typically scattered across numerous sources. By combining data on past investments, industry focus and investment sizes, new technology can help focus attention on LPs that will have an appetite for their fund.
Targeting LPs can help build stronger relationships. By marketing funds that align with an LP's preferences, firms can demonstrate that they are committed to delivering value. Knowing their historic investments goes a long way to a successful new fund, whether it's a first or fifth fund. All of this ultimately leads to increased trust and long-term partnerships, both in advance of a new fund and during the funds lifecycle.
Challenges of a data-led LP fundraising strategy
AI tools are only as good as the data they're trained on, which leads to limitations. For example, using data as a key approach may miss new family offices as prospective LPs. By being proactive and predictive around data, investor relations teams can identify new pools of capital, based on certain signals. That might be in the form of former founders now creating family offices, spinouts from established Asset Managers or even new state investment funds.
In conclusion, data is transforming the way private equity firms approach LP fundraising. By analysing LPs old and new, firms are able to target their outreach much more effectively, save time, and build stronger relationships with their investors. The human element is critical, but with the right information, the process can be far more efficient.