Communications Principles Private Equity Firms Should Consider in an Increasingly Competitive and Transparent World
In a highly competitive environment where little is truly "private" anymore, how can private equity firms best control their narratives?
Today, all private equity firms compete aggressively for investment opportunities, capital and talent, even as they manage increased scrutiny of fees; the performance of individual investments and funds; and overall contribution to society, including their role in creating jobs. In fact, many private equity firms have become major employers through the combined headcounts of portfolio companies – with some larger firms employing hundreds of thousands of people – leading some industry observers to question whether they should be making greater societal contributions.
These pressures have come as the industry’s private status has largely eroded. Limited partners have pressed for greater transparency from general partners, and information flows from public pension funds and regulatory disclosures have also increased. The media continues to aggressively cover as “news” all types of firm and portfolio company developments. And, of course, conversations across social media can now shine a spotlight on an organization and change its reputation overnight.
These dynamics have made it a must for private equity firms to adopt strategic communications programs to differentiate themselves in the minds of LPs, management teams, intermediaries, government officials, employees, and other stakeholders.
Every general partner should consider five guiding principles as they position their organizations for success:
1. A Firm Must Actively Manage Its Digital Footprint
While virtually all private equity firms today maintain their own websites, many have established a wider digital presence in order to showcase the breadth and metabolism of their businesses to stakeholders. Firm websites now offer enhanced content such as market perspectives, video interviews with principals and portfolio company executives, and updates regarding contributions to the community. And many firms are leveraging social platforms such as Twitter and LinkedIn to project their stories.
Even as firms take care in curating the information they present about themselves, it’s also important to closely monitor online search results and digital identity across “un-owned” properties such as Wikipedia and databases like Glassdoor, which may hold reviews not only of their own firms, but of portfolio companies as well.
2. Firms Must Tell the Stories of Their Investments to Demonstrate a Track Record of Creating Economic Value and Advancing ESG Priorities
While discussion of past investment successes has long been standard for private equity firms, many now also publicly showcase case studies detailing how value specifically was created during a holding period. The stories address value in various forms – as investors increasingly are also focused on investing in companies that are committed to positive environmental, social and governance principles (ESG), including creating jobs and improving the world in different ways. The importance of financial sponsors effectively and convincingly communicating these narratives to LPs is a natural corollary to the growing trend of investors wanting more information about their investments, and also can benefit the private equity sector as a whole.
3. Due Diligence Is the Time to Identify Reputational Risks
Crises at portfolio companies don’t just impact the valuation of those businesses – they also have the potential to affect the reputation of their financial sponsor. As such, private equity firms should build reputational audits into due diligence related to platform investments, add-ons and other strategic initiatives. It is crucial both to identify hypothetical risks – from market disruption to product failures and cybersecurity incidents – and also to establish the appropriate crisis communications protocols and responsibilities to execute these plans. The plans should be updated periodically to reflect new risks and positioning.
4. Globalized Investments Breed Global PR Risks
As investing in international markets expands – and as portfolio companies look to extend their global reach – private equity firms must take additional protective measures to ensure that they have sufficient capabilities to address a communications challenge with appropriate regard for local sensitivities and dynamics. Failure to do so is a common mistake firms make in the face of an international PR crisis.
5. Pay Special Attention to LP Interest in More Frequent and More Transparent Communications
Most LPs are no longer satisfied with quarterly letters and annual meeting as the core of their investment managers’ communications. Given the interest of LPs in increased transparency, including understanding potential conflicts of interests and other important concerns, most firms proactively engage with LPs through more frequent touchpoints. Today, firms are engaging through one-on-one meetings, special events focused on particular strategies or initiatives and also are providing more detailed updates on portfolio company milestones and announcements.
In an ever more competitive and transparent world, a well-conceived communications strategy and public profile for financial sponsors is critical. Of course, a strategy needs to be consistent with a firm’s investment approach, culture and all relevant regulations. And, the strategy must ensure that the public persona of a firm should be primarily controlled by its principals and trusted advisors to ensure an accurate depiction of how it approaches its business, its track record and its operating philosophy. The high stakes of a firm’s public perception demand nothing less than sustained communications engagement.
Kekst is a leading strategic communications consultancy that, as part of its broad practice, partners with private equity firms representing a range of sizes, strategies, geographies, and communications objectives. Kekst’s alternative investment practice is one of the largest – if not the largest – in the world.