1. What private equity
can learn from
public companies
“Limited partners are looking for clear,
differentiated strategies, with relevant
and proven capabilities.”

2. 2© 2015 Falls Communications. All rights reserved. An abridged version of this article first appeared in Private Funds Management on June 11, 2015.
WHAT PRIVATE EQUITY CAN LEARN FROM PUBLIC COMPANIES JUNE, 2015
Ironically, as private equity looks for inspiration for
innovation, it should look no further than the public
markets, where issuers have been dealing with a
number of the same challenges for years. In this paper,
we will look at three of the biggest issues confronting
private equity today – differentiation, transparency, and
succession planning – and how effectively adapting
public-company approaches to investor engagement
and communications could enable them to compete
for capital more effectively and efficiently.
Differentiation
The head of a prominent and active family office recently
told me, “I see multiple investor presentations from
various private equity firms every week, and they all say
the same thing.”
This is particularly problematic given that 2015 is “…
likely to be yet another year where money is committed
to a relatively small number of fund managers.”2 This
is further complicated by the fact that “… shifts in the
industry are pushing limited partners to rethink their
general-partner selection capabilities … track record is
no longer a reliable indicator. General-partner selection
is becoming more focused on understanding the
capabilities that have driven past returns and assessing
whether those capabilities are still present, relevant,
and sufficiently differentiated to continue to drive out-
performance into the future.”3 Limited partners are
looking for a line of sight to the desired future state of
the investment by extrapolating data and putting it into
context. This should not be a surprise to anyone given
that “… only about 20 percent of the best managers
have two top-quartile funds in a row and 30 percent
are one-hit wonders.”4 In fact, “top private-equity
firms now seem less able to produce consistently
successful funds.”5 This might explain why first-time
private equity fund managers are expected to gain
market share in 2015.6
Therefore, private equity fund managers – like their
corporate issuer brethren – need to learn that the
numbers no longer can speak for themselves. “To
raise capital in a newly competitive era, private-equity
firms must be able not only to point to a track record
of success … but also to say how that track record
was achieved and, even more critically, how it will
be maintained. [This will require] a more detailed
understanding of their past performance and be able to
describe its fundamental underpinnings – in particular,
the skills, brand, focus and other capabilities that the
firm brings to its deals.”7
In other words, tomorrow’s market leaders will effectively
expand their narrative with investors beyond historical data
to provide the broader context of both the fund strategy,
the market dynamics at the portfolio company level and,
the ongoing cohesiveness of the general partner principals.
This is needed to fully appreciate the value-creating
opportunity that creates a distinctive competitive advantage.
“Limited partners are looking for clear, differentiated
strategies, with relevant and proven capabilities.”8
In January 2015, Antoine Drean, founder and chairman of Palico, wrote, “It’s safe to
say private equity will see more innovation this year than ever before, as investors
actively adjust to the growing complexity and diversity of the asset class.”1 With
increasing competition for capital – thanks, in part, to the regulatory changes with
regards to marketing and compliance, as well as growing limited partner influence –
many private equity firms will need to be innovative just to keep pace with peers.

3. 3© 2015 Falls Communications. All rights reserved. An abridged version of this article first appeared in Private Funds Management on June 11, 2015.
WHAT PRIVATE EQUITY CAN LEARN FROM PUBLIC COMPANIES JUNE, 2015
Transparency
The compliance checklist for private equity firms
continues to grow in the wake of rapidly evolving regulatory
requirements. From the formation of the Securities
Exchange Commission’s (SEC) Asset Management Unit
in 2010 – designed to analyze private equity issues and
practices – to the creation of the SEC’s Office of Compliance
Inspections and Examinations (“OCIE”) in 2012 to the most
recent changes within Dodd-Frank, private equity firms
face greater reporting scrutiny than ever before. These
actions are driven by the SEC’s heightened concern of
fraud in light of “… difficult fundraising environment, the
need for steady private equity returns, conflicting interests
between investors and management companies, and a
lack of transparency in valuing illiquid assets.”9 This is
compounded by the fact that “… the number of hedge
and private equity fund managers registered with the SEC
has increased dramatically.”10
Private equity firms need to
understand how to balance
their SEC compliance
imperative with their
investor communications
obligation.
At the same time, private equity is facing increasing
demands from limited partners, who are looking for more
timely and insightful information on both the current
performance of their investment and expectations going
forward. Today’s private equity investor is looking “… to
generate deeper insights into the drivers of [performance],
follow these insights to identify high-potential geographies
and sectors and have the conviction to use these insights
to select external managers.”11
THE PATH TO DIFFERENTIATION
STARTS WITH THESE THREE
STEPS:
1. Ask yourself tough(er) questions:
• Why is now the right time to invest with your
firm or this fund?
• What makes your fund more attractive than
those offered by peers?
• What don’t current or potential investors fully
understand / appreciate about your firm, your
fund, or the market opportunity?
• How does your firm evolve its capabilities to
stay ahead of the competition both in deal flow
and operational improvements with portfolio
companies?
2. Think like a brand strategist:
• What is your firm’s “investment brand?”
• What makes your investment brand authentic?
• Does every touch point with current or
potential investors genuinely reinforce your
investment brand?
• How do you build and preserve trust?
3. Act like a marketer:
• How can you simplify your value proposition
and/or deflate potential value inhibitors?
• How can you make it easier for limited partners
to stay current on their investment?
• What’s your channel strategy, and how can you
better capture and maintain investor interest in
between capital campaigns?
• How can you foster a candid and ongoing
dialogue with investors?

4. 4© 2015 Falls Communications. All rights reserved. An abridged version of this article first appeared in Private Funds Management on June 11, 2015.
WHAT PRIVATE EQUITY CAN LEARN FROM PUBLIC COMPANIES JUNE, 2015
This is not unlike the pressure institutional investors are
placing on publicly traded companies, who are looking
for greater context and insight into the business. These
investors have neither the time nor the patience to
unpack a company’s value proposition. “[Investors] want
companies to communicate and explain, rather than
simply disclose.”12
Succession planning
Few segments of the financial industry are more
personality driven than private equity. When a PE firm
is launched, it’s largely done so on the founder’s
reputation more than anything else. Subsequently,
regardless of whether or not the founder’s name is on
the door, he/she is the personification of the firm, the
embodiment of the investment strategy, and the owner
of the vast majority of longest-tenured limited-partner
relationships. The reputation of the firm and its founder
(or founders) is intrinsically linked.
Add in the fact that, because PE firms do not transition
leadership anywhere near the frequency of publicly
owned companies, internal and external stakeholders
have little appreciation for “life after the founder.”
As a result, the stakes and anxiety levels are especially
high when ushering in the next generation of senior
leadership at a particular PE firm and aligning them
with limited partners.
Because most PE firm leadership succession plans
rely on internal candidates, there are a number of
unique communications issues to consider. For example,
while the newly named Senior Managing Director is
known among stakeholders, he/she also is likely to be
a first-time Senior Managing Director. As a result, this
individual will face internal and external skeptics, as well
as existing perceptions that may need to be dislodged.
Therefore, it will be critical to establish the new Senior
Managing Director’s:
• Experience that will help make the firm even stronger
in the future
• Leadership philosophy
• Broad observations on the firm and the markets served
• Unrelenting commitment to strong ethics and integrity
• Presence in civic and industry organizations
Common topics investors want communicated and
explained that would be applicable for ongoing
limited partner communications would include:
• Review of strategy
• Sector dynamics and projected growth rates
• Use of cash (i.e., transparency as to fees taken
by general partner over the life of the fund)
• Portfolio operational management execution
• Progress on achieving key goals
• Corrective actions needed/taken
• Forward-looking financial guidance
• Forward-looking operational guidance
• Financial results
• Segment performance
• Products and services
• CSR/sustainability initiatives

5. 5© 2015 Falls Communications. All rights reserved. An abridged version of this article first appeared in Private Funds Management on June 11, 2015.
WHAT PRIVATE EQUITY CAN LEARN FROM PUBLIC COMPANIES JUNE, 2015
continued growth is considered by some to a harbinger
of the continued migration of this “alternative” asset class
towards the mainstream.14
Doing so not only helps in
the fund-raising efforts, but
it also helps demonstrate
the value derived from the
management fees.
And with this growth comes an added burden of actively
managing the gap between fund performance and investor
expectations (or what we refer to as the “P/E ratio” of
investor relations). Without question, those firms that are
able to maintain a consistently narrow performance-to-
expectations gap will have a competitive advantage in the
marketplace. In order to create this advantage, private
equity firms should look at the IR play book of forward-
thinking public companies to better understand how to
successfully balance their SEC compliance imperative
with their investor communications obligation. Doing so
not only helps in the fund-raising efforts, but it also helps
demonstrate the value derived from the management fees.
• Clarifying and creating buy-in for changes in priorities,
procedures, etc., under new leadership
• Establishing an authentic and differentiated leadership
“voice” and communications style – especially
given the founder’s typically strong presence and
engaging persona
Other areas of emphasis during a leadership
transition include:
• Creating realistic and measurable near- and long-term
expectations to help create a common focal point
for the organization, as well as to stem the flow of
inaccurate information and speculation
• Building credibility for reconfigured leadership
team (i.e., who will step into the previous role of
the new Senior Managing Director and who will fill
roles of other internal candidates who might be
leaving the organization)
• Redefining the working relationships with limited
partners, directors of the portfolio companies,
colleagues and business associates
Many industry experts expect 2015 to be the third
consecutive year of strong, $400 billion-plus private
equity fundraising.13 Interestingly enough, this
1 Ten Predictions for Private Equity in 2015 – Forbes.com
(January 12, 2015)
2 Ibid.
3 Private equity: Changing perceptions and new realities –
McKinsey Company (April 2014)
4 Ten Predictions for Private Equity in 2015 – Forbes.com
(January 12, 2015)
5 Private equity: Changing perceptions and new realities –
McKinsey Company (April 2014)
6 Ten Predictions for Private Equity in 2015 – Forbes.com
(January 12, 2015)
7 Private equity: Changing perceptions and new realities –
McKinsey Company (April 2014)
8 Ibid.
9 Private equity funds face increased scrutiny from SEC –
Winston Strawn (Spring 2013)
10 Private equity and the SEC: A Brave New World of Scrutiny –
Pepper Hamilton (May 21, 2014)
11 Private equity: Changing perceptions and new realities –
McKinsey Company (April 2014)
12 2015 Investor Survey: Deconstructing Proxy Statements –
What Matters to Investors – Stanford Graduate School of
Business (February 2015)
13 Ten Predictions for Private Equity in 2015 – Forbes.com
(January 12, 2015)
14 Private equity: Changing perceptions and new realities –
McKinsey Company (April 2014)
Notes

6. Rob Berick
+1 216 472 6680
rberick@fallscommunications.com
50 Public Square Floor 25
Cleveland, OH 44113
216.696.0229
fallscommunications.com