MVision founder and CEO Mounir Guen, looks back at private equity fundraising over the last 20 years, the impact of marco crises and technology, and future developments.

What did the fundraising environment look like 20 years ago?

It was a people business, so it required extensive meetings between GPs and their investors during the fundraising process. Data rooms were done on-site and there were a lot of in person interviews, so it was quite labour intensive. There were a lot of coffees, meetings, lunches, dinners and drinks, meaning it was quite typical that you would have 10 to 12 meetings with an investor.

On the investor side, the teams were all really driven by personalities, firms that had strong views about what they liked. GPs were also driven by personalities, people that had very strong views on what they wanted to do, too. It was a time of personalities and firms had to decide who they were comfortable with.

Furthermore, as the asset class was nascent, not only in deployment, but also in its portfolio construction, most investors had quite a large number of relationships, around 100 to 120 at the time. Around 90 per cent of the capital was from the US and they were all into portfolio diversification. The first beneficiary of that was Western Europe.

How have investors and LP-GP relationships developed over the years?

Twenty years ago, the non-US investor base was quite minimal. Back in the late 90s, there weren’t many European investors, but then in the 2000s we began to see dramatic growth in Europe, and then globally.

Banks were also more involved in PE 20 years ago. They had internal PE teams and they could use their balance sheet to borrow money to commit to funds. So, it was quite typical that banks dominated the fundraising numbers, especially for general partners that had shown success. Then, with bank consolidation and other factors, all of this disappeared.

Looking at today’s market, most investors are well over two thirds US; they’re very much buyout, with a bit of growth, and a bit of venture featuring as well. Investors have also reduced their relationships from around 120 to 30 or 40. Everything is also done virtually and there are huge amounts of diligence that is being done.

How did the global crises (GFC and the Covid-19 pandemic) impact the fundraising landscape?

The pandemic reduced the need for travel during a fundraising and has upgraded the involvement of larger teams in communications. Prior to that, GPs, LPs and their service providers would have to meet physically, and not everyone was always available to attend. But now, all of the team can get onto a video conference much more easily and it’s super efficient to do DD and data rooms.

The GFC also had a massive impact on the industry because it strained valuations. Where the pandemic saw some equity markets drop by around 20-25 per cent, the financial crisis saw equity markets drop very rapidly. They fell so rapidly that it was difficult to value assets and that, as a result, created an unknown.

It was a two-year hit. In 2009, the investors weren’t sure what to do and they had to figure out what they had in their books. And, in 2010, the GPs were so shell shocked by what happened in 2009 that they were hesitant to come to market. So, it wasn’t until 2011 that both GPs and LPs were ready to fundraise again and then there was a flurry of activity in the first six months. The interesting thing that happened is that GPs didn’t know how to respond, so they offered discounts, but the investors would have come in anyway! In 2012, fundraising resumed to a normal pattern.

How has the expansion of funds impacted your role as a placement agent?

I think one development to mention is team scaling. With this I mean a lot of GPs started to put together quite significant investor relations teams. This is because 20 years ago, a GP would have minimal contact with an investor unless they were fundraising. Whereas today, the paperwork is extensive; there’s very regular contact, especially if they’re doing co-invest and so by default, firms need to have internal IR people. As a result of this, there has been a significant shift of placement agents to IR jobs.

As a placement agent, you could argue that there’s less business to do, because we’re being crowded out. Or, you could argue that our people move on more regularly, so we’ve just had to adapt to these shifts.

The expansion of funds and strategies has also meant that placement agents are approaching the market in a more structured format and need to be able to introduce new concepts to investors. This means that skill sets across the board are quite different. Twenty years ago, it was all about personalities and chemistry between people, whereas today it is very process oriented.

In what ways have new technologies played a role in advancing fundraising for GPs and LPs?

Twenty years ago, emails were just starting to be used and communications were really by voice - telephone and voicemail. It was quite typical that you would have five hours of voicemails to listen to per day, as opposed to 1,000 emails to go through.

With the volume of information that has to be processed today, technology has become critical. Technology is needed for data rooms, to move information, to format it and to communicate and do DD sessions on video - it is vital.

Looking at fundraising now, a lot of investors have a two-year forward calendar, and so we have to look two years ahead also. This requires a lot of communication, which is aided and accelerated by technology.

Technology also helps to vet people quicker during a fundraising. Where previously, we would have to fly to different countries to meet people; today, we can video call first and filter firms much more efficiently.

What does the future look like for private equity fundraising?

We are seeing more conversations and movement around the democratisation of PE. For example, in Spain, they have now allowed people with smaller amounts of savings to access alternatives and we are seeing more and more of this, like the 401ks opening up to PE in the US also. Essentially, where retail investors don’t have any other ways to generate reasonable returns for their long-term savings, alternatives gives them that. It should definitely be regulated and controlled, but I believe it will be a good thing for the market.

The other aspect that will come to market is family groups that will use their capital to create PE firms. Twenty years ago, we had a whole generation come out of the financial groups and going forward, we are going to have a whole generation of firms coming out of family groups.