The Future of Private Equity Fundraising with Brian Bank from Kirkland and Ellis

I'm super excited to be back with repeat guest and my friend, Brian Bank. Brian, great to be with you today.

But if you think about where Brian sits, he sits in the fund formation practice, where they have over 600 attorneys alone. in this practice. They have more than 1,000 general partner slash private equity clients, and they've been part of raising more than $2 trillion of capital since 2020.. So that's a mouthful. Take a breath.

That's a lot. But this is going to be a really interesting episode because there's some really kind of tectonic shifts going on, not only in the world, but in the private equity landscape. And so we're going to pick Brian's brain on the state of the fundraising market, how emerging managers are faring, some of the latest on continuation funds and secondaries, this whole concept of ESG, and then what's happening in the limited partner and annual meetings and kind of some of the fundraising processes in this fundamentally different post-COVID era. How does that sound? That's a list of really good topics, Brian.

The two year number, 22 and 23 combined, is the second largest number of amount of capital raised within private equity. I think, if we look at sub-asset classes, there are some that are challenged. Venture is down precipitously. In fact, actually down significantly. where PE is down, I think less than 10% on a dollar basis.

The number of funds that have closed is certainly lower than it has been in the past. The number of emerging managers that have successfully gotten through the market is down significantly. The numbers are somewhat skewed based on the size of funds being raised. I think 50% of all capital raised came from the largest 15, 20 funds out there. So it is a very barbelled approach to fundraising.

That said, it's important to remember that LPs do want to deploy capital. They are obviously thinking about their own jobs, rationalizing and justifying what they do on a day to day basis. And they'd love to deploy capital and write commitment checks to GPs. The challenge, as I'm sure we'll talk about, is that liquidity and the inability to write those checks until there's been more liquidity coming into their LP offers, frankly, that they can then.

And?

They've been at it for too long. But overall, I think the market is improved. The mid market, the lower mid market, has had the highest success from a fundraising perspective. But again, it is a bit of a tale of those who have and those who never have. And I think LPs are being much more selective.

I think they are more sophisticated. I think they are rationalizing the number of relationships that they are going to maintain. And unfortunately, for a lot of emerging managers and other GPs, many managers are launching multiple strategies and multiple funds simultaneously. So when you're an LP and you're rationalizing the number of relationships you're going to have, it's easier, frankly, to commit to multiple funds from the same manager than go across multiple managers. So I think the mid market is a great space to be in.

And again, what that definition is really varies. I mean, when I started my career in this industry, 25 years ago, mid market was a billion dollars, was like the high end of the mid market. Now, obviously, that's not even a starting point. We're seeing emerging managers coming out with a billion dollars on the cover. And I think there were eight funds in the market presently targeting over 20 billion dollars from the target fund size perspective, clearly not the market.

But that definition has evolved pretty dramatically over the last 20, 25 years.

And my sense is, as the market opens up, as we're seeing it open up, they're going to go back to also where the returns are, where the alpha is, which is in the middle and the lower middle market, traditionally. I think that's right. I mean, I think when you.

And it's not looking silly. Internally are the primary drivers for them when they're making investment decisions. and to justify why they make a commitment to one GP versus another is often a very thin line. And to your point, you're never going to get fired for committing to an established fund. And it's even one step further in that you're not raising a concern about the existing GPs by not deploying to those funds.

stated another way. If you're a GP coming back to market with fund five, if you say no to fund five, it immediately raises the question, what's wrong with funds for three and two, you're going to put yourself under the microscope of your constituency, your investment committee, and your leadership. So again, as someone who doesn't want to stand out, doesn't want to rock the boat, it's easier just to say yes. That said, the returns do show that emerging managers funds one, two, and three smaller, lower mid market, mid market funds do have historically better returns. And it makes sense, there's better alignment, the individuals are driven, they are, in most cases, putting an over concentration of their net worth into this entity and into this launch.

So they're really, really focused, more so, unfortunately, than when they were part of a larger, more established organization. So again, I think the lower mid market and the mid market is a great place. emerging managers are fantastic to work with, you can have a direct influence. As an LP, you can see co investment, you can have a lot of other benefits that you don't necessarily get when you're investing, even a 25 $50 million commitment. To a 15 $10 billion fund.

So there's a lot of advantages, not even speaking to some of the liquidity opportunities, right? When you're investing in a huge GP, the number of exit opportunities is somewhat limited. But when you're working with a smaller enterprise value company, there's obviously M&A, there's corporate acquisition, there's the IPO market, there are a lot of different options, sponsors, sponsor transactions, etc. That, again, historically, have boosted returns and boosted liquidity.

They have so much, they're like real companies. And the smaller firms, the emerging firms, they just can't wait as much. And so I'm curious to get your perspective. where you're seeing whether it's a lower middle market firm that is in between firms or an emerging manager, where you can kind of be on the sidelines for 12 to 24 months, but not much. What are you seeing them do if they're not getting the number that's on the front of the offering memo?

What are their alternatives? What are the approaches that you're seeing them to kind of keep moving forward? No, it's a great question. And a lot of emerging.

So they've had multiple conversations. They've been in the market for multiple years. The market isn't great for closing a closed-ended vehicle. So what we advise a lot of our clients to do is to make investments, make two or three investments. And I advise clients on this all the time.

Make sure that they fit exactly the description that they've been trying to fundraise against for the last 24 months. Ensure, frankly, that the documentation and the legal ease allows them to roll those investments into a closed-ended fund within a certain time period. And offer co-invest to the investors to assist you in getting across the finish line on these one-off transactions. So in a best-case scenario, you've made three investments, let's say, in a 18-month time period. You've raised that capital from a handful of good institutional investors who evaluated you and your process, and your team, while making that co-invest, have hopefully agreed to roll those investments into a closed-ended vehicle, and then stapled a more significant commitment to that closed-ended vehicle.

So you've got an LP base. You've got a track record. You've demonstrated a pipeline. You've demonstrated an ability to execute against that pipeline. And you've literally opened the kimono to your process to a larger universe of LPs than otherwise would have been the case.

It's the equivalent of getting a job from a job. You're much better off sharing your story. The danger is veering outside of the fairway. If you've been marketing your fund as being a billion-dollar target, with enterprise values of $150 million at most, and the first few you're showing in your sourcing are significantly greater than that, it doesn't show the discipline, and it can concern LPs that you're veering too far away from what you've shared. We have seen situations where LPs that had made a commitment based on a certain size second-guess those commitments based on what the investment looks like, what the types of deals they're looking at, and it can leave a negative taste in the LP's mouth.

I've backed out of commitments when I was on the LP side at this point over 20 years ago, with a lot less graze in my beard, based on the fund outgrowing, the size and the strategy that they marketed.

So show them that you can do it, and then you can also keep the engine moving, you can do deal by deal. And we're seeing a lot of really capable PE professionals be quite successful. And some of them, by the way, they don't know if they're going back. No, that's right. I mean, you can.

down the road, you're going to be coming back to market with a partially baked fund. And it's always better from an LP's perspective to know what they're investing in. And it's also important to remember from the LP's perspective, that they want to see liquidity coming out as well. So a best scenario, we had a client who came full circle, literally made an investment, and had an outsized return during their fundraise. And again, as these fundraisers take longer and longer, it's not out of the question to see that happening more frequently.

That's a situation where you're going to end up having a very successful fundraise number two, as opposed to that first fundraise. And in this scenario, and in fact, I can think of another, where they actually closed the fund quickly, because they wanted to go out and raise a larger number with better terms, because at this point, they were a pretty hot commodity. And LP's faced that perception of limited availability and wanted to get in, they had FOMO, if you're missing out.

It's the same that I'll share with you later in this conversation regarding annual meetings. It's very risky to assume that your audience knows you and your strategy and your story, even if you've met.

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Before we move on, I want to get your perspective. I think a lot of this is not even a function of just the evolution of the PE industry, as much as it is liquidity and what's called the denominator effect. And it seems like they're kind of going through this kind of like sine curve. It's the denominator effect. Oh, no, it's liquidity.

And now it's denominator effect. Can you talk a little bit about what has happened in just a quick course through when the public markets crashed, then it was a denominator effect, and then it was liquidity, and now it's the denominator again. So walk us through kind of what you saw there and what might be coming forward. so just people think about even the addressable capital that may be available for or investment into a PE firm or an individual deal.

2008, it was very dramatic when public markets crashed and we had the global financial crisis. As a result of the significant precipitous decline in the public markets, LP allocations to private equity was, across the industry, out of balance. As a result, in fact, in certain ways, it could have been one of the leading factors that led to the launch of the secondaries industry, where big institutions needed to move multi-billion dollar portfolios to get rid of this denominator effect imbalance. The last few years, obviously, since COVID, I mean, the public markets, I think we can agree have been on a pretty good run, even with COVID and some early bumps. We're close to 39,000 right now for the Dow.

Overall, public markets have maintained their value. Unfortunately, as we also know, those of us who are involved in the real estate industry, interest rates have gone up. So a good balanced portfolio will include a fixed income portfolio. When interest rates go up, as you know, value of fixed income goes down. Now, again, we have a different cause of the denominator effect, causing people to either re-evaluate what those limitations and guidelines are for their allocations or hold back on new commitments to certain asset classes.

It could be real estate, it could be public equities, it could be private equity. based on this fixed income decline. I think right now, people have grown comfortable understanding that fixed income is where it is. Some large institutions have adjusted their allocation mix. But I think there is a concern.

And again, I don't want to be a foreboding person and bearer of concern, but we still haven't seen the global real estate market get marked the market yet. And obviously, the commercial real estate market in major cities like where I sit, San Francisco, will have an impact on that real estate portfolio across the industry, which could theoretically lead to a different cause of the denominator effect, which, in this liquidity starved private equity environment that we're sitting in, will not be positive. It is yet another of the four or five elements that are causing this headwind.

And so let's say you're like a huge state pension fund, and you have $100 billion to put to work. And you're going to say, you know what, 80% of what we're going to do are going to be in public debt, public equity. We're going to put 20% into alternatives, which is private equity and venture capital, and maybe private equity real estate. And let's say your private equity stays the same. And let's say that's 20% of your allocation.

And so you're still, 100 billion, still worth $20 billion. But suddenly, let's say you've got a 10% decrease in the rest of your portfolio. Your private equity portfolio is still the same, but everything else is now lower. So now that private equity portfolio is 25% of your portfolio. They didn't change at all, but everything else did.

But if you're a large allocator, you have to keep things in relative allocations and buckets vis-a-vis each other. So suddenly you're saying, all right, no more private equity. Even though you're the one that's performing, you're out of luck because the others are down and I can't have more than these buckets. Because, you know, thank you, Columbia Business School. You got to keep all these things in different relative allocations and rebalance over time.

Is that a fair way to kind of describe it? Absolutely. And then, I mean, again, private.

I mean, I grew up in Maryland. I drove across that bridge that got taken out by the ship hundreds of times over the course of my life. Unfortunately, one of the shipping companies, private equity. So interestingly, I don't know. I haven't taken a look.

It's not one of my clients, but I'd be curious to know whether any of the Maryland state pension plans are actually invested in this GP that owns the ship that took out the bridge. My point is that, you know, these high profile events, I mean, the Newtown massacre, what, 10, 12 years ago is another example. Private equity firm owned the manufacturer of the gun that was used at that.

Where I think there is a critique for private equity is the liquidity effect. And so the private equity industry, if you look at it, the age of their portfolios are getting older and older and older, because the private equity industry very rationally understands that they can only sell that asset once. And so they're like, let's let things settle down a little bit and let this thing grow a little more. And then we're going to sell it, because we have the luxury of time. What that's caused, though, is the LPs are used to having money coming back regularly.

If the LP wants to reinvest in that private equity firm again, they need cash, and they need to have it come back on a somewhat predictable basis. And it hasn't been. And so I think the other big question that people are really thinking through is the thing that private equity firms in general as a whole can impact is the ability to provide liquidity by exiting their holdings. Now, whether or not each firm is going to act rationally in their best interest and say, we're not going to sell, if they were able to understand as a whole, it makes sense that they need to, that would probably make sense. But it just hasn't been happening and probably won't until the market gets better, which it looks like it kind of is.

The perception in the market was there's an issue with it. It's a used car sale. And over the last, I'd say, 20 years, it's really evolved into a portfolio rationalization mechanism and tool. I referenced it earlier during the global financial crisis, 2008.. Very large, very good institutional investors were putting large, good portfolios into the secondary market.

There's a debate how big the secondary market's going to grow. And some are projecting it to be as big as a trillion dollar business inside 10 years. And whether it's a trillion dollars or there's $500 billion, it will grow pretty dramatically. And what's interesting about the secondary growth is the number of different categories or solutions that now fall under the secondary market definition, one of which being continuation funds or continuation vehicles, which does speak specifically to what you just referenced, which is early liquidity or liquidity for an asset that otherwise wouldn't have liquidity. And it's a really unique, interesting tool where a GP can go back to the market, go back to their LP base, and essentially reset the clock on some of their better assets.

Continuation vehicles are generally utilized for marquee assets within a portfolio. So every GP, when you were a GP, you hated having to sell an asset based on the timing of the fund. You've hit the end of the fund life, you're 11, you've already had a one year extension, and it's time to sell. And this could be a phenomenal asset. It could be an asset that was the last investment you made at the end of the investment period.

And the last thing you want to do is sell it. So a continuation fund, basically, is giving the GP the opportunity to take these marquee assets, buy them from themselves, get a third party, multiple external valuations to make sure that the price is fair and appropriate. They go to their LPs and they offer them the choice. Exit your position, roll your position, or a balance of the two. And what it does is it resets the economics for the GP.

But, more importantly, it gives the GP the option to hold this asset, which is a fantastic asset, to a better harvest period. What's interesting is people consider this a artificial transaction. The reality is it's a sponsor to sponsor transaction, like any other exit. It's just the same sponsor. And what's interesting is I heard one of the very senior investment bankers who's focused on the space recently, and he highlighted, and they're the group that does more banking on these transactions than anyone else.

The average transaction value is over 3x. So here, in a very challenged liquidity market, they are approaching LPs and saying, look, here's a 3x outcome. You can either hold it, you can flip it, you can do a balance of the two. But as a result, I think they are creating liquidity. It's becoming something that's well understood among the LP community.

And look, I was an LP for 17 years. I understand LPs don't like having something forced upon them. Most LPAs now have this as a possibility. I mean, the LPAs do put in language that gives the flexibility for the GP. But at the end of the day, I think LPs are understanding the value, understanding the rationale.

If they sit back and think about it, in most situations, it's a logical next step for the GP, particularly in this environment.

Show us. Show us, it's really worth that. And so you sell your best company that has probably the best length to it. And everyone would just get like this, sick to your stomach feeling, but that's how the rules worked. And if you think about the expansion and the maturation of any industry, it's liquidity and secondary options that kind of go hand in hand in the success of those.

And what a continuation vehicle allows is for you to offer optionality to your limited partners. As a GP, it's very fair to say, you know what? I can take an asset and I can take it from $1 to $1.40, and that's a 40% IRR, but it doesn't produce a nickel of, what is 40 cents? 40 cents doesn't do anything for you. Or I could take that one and turn it into five.

If you want your 40 cents, take it, because we understand there's liquidity issues. But if you want to see that one go to $5 over another period of time, let's keep on going with this.

And again, as a former LP, I'm fully appreciative and encourage the participation of the LPAC. Pick up the phone and call one of your two or three closest relationships on the LPAC. And I would be surprised if those individuals are not familiar and are not comfortable with the utilization of a continuation vehicle. Because again, in this arid, to put it mildly, liquidity ocean we've been in, this has been a very useful tool to provide that liquidity. And again, back to my earlier comment, LPs want to deploy capital.

LPs want to be busy. LPs want to encourage the continued growth of this industry. So if a continuation fund gives them an opportunity to take more capital and find a new emerging manager, or even just deploy it back to existing, that's positive from my perspective.

I don't want to be as told as it. And you think about decisions thrust upon LPs, when that asset is sold by the LP, they don't have a choice in that either. It's just, you'd have no choice. It's just the money's.

It's absolutely still part of the world. And it may be for a variety of reasons we can get into, but talk to us about why is ESG part of the private equity world, the larger alternative world, the larger public markets, and what's happening there most recently?

So is it beneficial to a company to ensure that there's no toxic waste, that their employees are treated well, that there's no risks at a factory of injury, that there's a diverse workforce, that there's a diverse leadership on the energy side, that there's a greater emphasis on cleaner energy technologies? I don't care what side of the political aisle you sit. I think people, though, generally appreciate responsible investing. And the recent last, say, 10 years of data reflects that companies that do have this emphasis, or at least participation conceptually in responsible investing, have better returns and better outcomes. Better because companies that are buying them will pay a premium for a company, that they know that they don't have to clean up toxic issues.

They don't have lawsuits related to liabilities related to the employees, whether it's safety, whether it's diversity, whatever the case may be. On the energy side, we all know that globally, non-carbon-based power sources will be increasing in the next 20, 30, 40 years. Clearly, they're not increasing at the pace that early energy enthusiasts claimed they would. But nonetheless, all we need to do is look out the window and see the number of EV cars, the number of solar installations, the solar parking lots of high schools and junior high schools and public facilities to know that we're moving in that direction. I think there's a delicate balance from a political perspective, not overemphasizing, not being so extreme on either direction, that it's going to offend the people that are involved in the investment decision and the oversight of those investments.

And I think we're seeing pretty direct responses on both sides of that debate. The number of states that have written into law limitations and restrictions on committing to funds that are stating an imbalance to ESG is problematic, right? We're seeing quite a bit of that. I don't know what the number is, but it's it's greater than 20, 25 states that have written that in. On the other end of the spectrum, we're seeing divestment.

University of Michigan is a perfect example that has divested every investment or is trying to divest every commitment into a GP that does traditional E&P, carbon-based investments. So we're seeing both sides of the spectrum. And again, I, we don't want to judge what's right, what's wrong. I think responsible investing is something that every GP needs to think about. In my seat, advising GPs from a strategic perspective, whether they're launching, whether they're an established firm, what's problematic when you still see the gender and diversity imbalance, particularly in marketing materials, in annual meeting presentations.

We're not in the 1950s anymore. And the fact is, is that the percentage of non-white male professionals is still way too low for where we are today in 2024.. It's going to take a very long process, and a very focused process, I think, to bring more non-white males into the industry. But again, when you look at 80% of the websites of GPs, it doesn't show that level of diversity, that level of gender and ethnic diversity that rightly should.

It was from a European LP. And then, when I looked at it, I go, oh, man, where are we doing all this stuff? We didn't know we had columns to put it in. In some ways, people would think there's valor in this. But in some ways, discretion isn't always a better part of valor.

And none of us ever wanted to publicize it, because we thought it would be untoward to pat ourselves on our back. It's just, you do it because it's good for business. And then it blew up. We started this Top Private Equity Innovators program, where we recognize really good P firms. And one of them is this whole concept, that is...

We'll talk about how it's getting rebranded, but this corporate citizenship thing, where doing good for the world and doing good for business are not mutually exclusive, and they're often very, quite aligned. And where I think ESG maybe came off the rails a little bit was it got politicized. And it's starting to line up with different constituencies. And it became kind of a topic that wasn't necessarily a legitimate talk to be had, but it was just another hot button that ended up in someone's kind of polarized agenda. And so what we're seeing at least is the P firms are still committed to making progress on this, but they're probably going to start calling it something a little bit different, but doing the.

So I was recently at a responsible investors conference, and a complaint was related to some of the HR related questions in the DDQs, asking questions down to the portfolio level of the demographic of the employees. And the reality was this DDQ, which was a very formalized DDQ, raised questions that are illegal from a labor relations perspective. You're not allowed to ask about someone's gender or their, I don't even know what the questions are. But the fact is, is that it was borderline, if not completely violating these types of components. And when the rationale is so far over the other side, it just delegitimizes the entire industry.

So let's make real change across diversity, against equity, inclusion. Governance has always been a strong point. And every PE firm, if nothing else, out of selfish altruism, understands that anytime they can eliminate waste in a process, that's good for everyone.

How has this evolved in the?

What does that really mean? It means that multiple rounds of meetings are now done virtually. I talk to LPs about this frequently. For the most part, the in-person now waits till the very end. The in-person meeting is that final check the box that the GP actually has an office.

I'm meeting multiple people in person. We're having that personal connection. We're really getting to know each other. But by that point, there have probably been two or three Zoom meetings. The Zoom meeting is also different in that it allows the LP to incorporate more members of their team.

Historically, the GP would come when I was on the LP side. The GP would show up, would be two or three members of the GP team, maybe one or two LPs from the entity. Today, we can have eight, 10 different LPs in the room. We could have the entire investment committee. We can have the PE team.

It can be far more inclusive. It's easier to schedule because, again, you're not dealing with travel. You're not dealing with who's in the office, who's not in the office. Frankly, it doesn't matter. As long as you can have a good calendaring system that shows who's available at a certain time, you could have eight or nine people on that meeting.

It is always going to be harder to connect, to stand out in a very crowded fundraising market, to differentiate in a highly undifferentiated industry. We could have 1000 PE firms, with bankers coming out of the big banks, people coming out of the big firms. It's like Harvard can fill every class with valedictorians who play the violin and were captain of the baseball teams. How do you connect? What do you do to really create that relationship with the LP, particularly when it's virtual?

I advise my clients to be very thoughtful about that, how to ensure that all members of the GP are engaged, are paying attention. They're not putting their Zooms on hold or going to the picture. They're not rolling their eyes when their partners are speaking. They're actually showing a close relationship with their team as opposed to being individuals. Obviously, getting to an in-person meeting is the ultimate goal.

This sounds silly to even have to say, but if you're pitching a remote LP, it means a ton to go to their location. If you go to Juneau to meet with Alaska Permanent, it means a lot. It means more if that's in January. It's the same with if you're going up to Ithaca, New York, to visit with Cornell or wherever, but more remote. I have a friend who runs a program in the middle of nowhere, Colorado, and he told me that, specifically.

When people show up, it means that they care. It means that they want their money, and it's a better way to spend time together. All that said, 75% of the meetings, if not more, all via Zoom, are virtual. So you need to think about what that actually means as a fundraising GP. Is your technology adequate?

Is your connectivity adequate? Do you have a gig of speed at your home office? What is your background? I had a client that would give pitch meetings in their home office. Unfortunately, their home office looked like the Game of Thrones palace room.

Again, when you're pitching a public pension where the guy's making less than the value of the desk and the bookshelf, you need to be aware of what your background is. You need to be humble. You need to not be overly ostentatious. It's little things. It's making sure that the audio works, making sure that you've got a high-definition camera, that if you want to share a screen, you know how to do it.

If your partner is speaking, you're paying attention. You're adding to what they say. You're laughing. You're reacting. There's a whole learning curve related to the online fundraising, and it now is moving into the online annual meetings as well.

And so you're like.

Just like your portfolio companies, when they go to sell themselves, very often P firms call us saying, hey, we want you to coach our teams. We have multiple groups that will coach teams, like here's how you sell yourself. well. I think P firms should use those.

They need to drink their own Kool-Aid. They need to understand that it's more important to show that same level of detail internally. That's the same that applies to presentation decks, right? I mean, when I see any typo, any kind of grammatical error, or even appearance error in a presentation, I have to highlight it to my clients because again, I mean, it sounds minuscule. It sounds completely minute.

The fact is, is that attention to detail could lead to missing a number in an Excel spreadsheet that turns a return or a projection completely upside down. And LPs notice that. LPs are only looking for reasons to say no, as opposed to reasons to say yes. Because again, they don't want to have to answer a question or be called out by their colleagues and say, I don't know, or you're right, and I missed it. So every minute detail needs to be paid attention.

I think that's another great point. And one other.

It used to be by Hoyas, you'd have a seven-footer, you know, go Patrick Ewing, he'd back to the hoop, and then he'd just kind of throw it over his shoulder and he'd score 20 points every game, or whatever it was. And then what happened is everyone went to three-pointers. And everyone's doing three-pointers, and it's these kind of more smaller, wavier kind of people who are fast, but everyone shoots three-pointers. And they're all built like that. So the whole world went that way.

But then you're watching this last NCAA tournament, suddenly there's these seven-footers that are just camping two feet from the hoop. And they're just pushing these, like, you know, lighter people right out of the...

If you want to differentiate yourself, go to Juneau. Go to Ithaca.

And when you really look under the hood, no pun intended, I mean, you see three people who are driving up and down the coast. In fact, it was only... It wasn't even up and down the coast. I think they put something insane, like 15,000, 20,000 miles on this sprinter van, visiting with LPs, where the LPs would meet them. They weren't going to the office, so they'd go to the parking lot at the closest Starbucks, whatever.

But anything that helps you stand out, I think, is going to take you a very long way in this fundraising drive.

And this is the one that's driven me insane for private equity for years. To put the cliche here, 90% of everyone I know who did management meetings, they would do it at one of the university clubs in Chicago or New York or Boston. that are kind of hoity-toity, a little stodgy. And every one of them would have this... No matter where you were, they had this one chicken dish with the little bone that popped up.

And I was like, everyone had that. So the joke is, well, did you have the white sauce or the brown sauce? And everyone's just like, get me out of here. But that's how it was done, because there really wasn't an expectation, and that's what you did. So what's your perspective on that, Brian?

It's always been a people business. But, more importantly, it helps you remember the GP. So if I think back on the 300 annual meetings I've attended, the ones that stand out the best to me are the ones that weren't in a hotel ballroom serving the salmon or the chicken with the little bone sticking out. It's at portfolio companies, it's tours, it's unique locations, it's fun speakers. It's incredibly challenging for some strategies to hold an exciting, dynamic, engaging meeting.

I mean, if you're a growth equity fund, that's investing in SaaS businesses, a morning of presentations on SaaS will literally put anyone to sleep, including the GPs. So how do you mitigate that? How do you make it fun? Hold the meeting somewhere else. Don't hold it in a room without windows.

If you're in Chicago, spend the money and rent that balcony, overlooking Wrigley. Take them to a Chicago deep dish pizza place. In San Francisco, take a bus. Don't have the meeting at the Four Seasons and force people to eat at the Four Seasons. Take them to Chinatown.

Take them to something in Boston so you can have clam chowder and lobster rolls. Just something that's memorable. I've been to a few dozen meetings at stadiums, basketball stadiums, football stadiums. It's something different. I've been at meetings overseas.

US GPs that host their meetings overseas. And again, when you think about an annual meeting, from my perspective, there are a few outcomes that are goals of the meeting. And it's not just to check the box that the LPA requires you to have a meeting. It's one, sharing information about the portfolio. That's a given.

Two, it's validating the LP's decision to commit to your fund by exposing them to more members of your team and members of the team who are well-spoken and knowledgeable. And then, third is give LP's the opportunity to bond with each other, learn from each other, and mingle with each other. And then, of course, fourth, if you're fundraising, make it memorable. Make it fun. Make it something that they look forward to, so that when they think back on the hundred GP meetings that they've had in the last 12 months, this one stands out.

And that's the same approach actually I take to schwag. I mean, people are like, oh, do we have to give schwag away? I'm like, absolutely you don't. But if you could put something that's in front of them on their desk, they're going to remember that. They're going to remember that they were given a Yeti mug that has your logo because it's sitting on their desk.

Think about something that a LP could use, travel packs, a battery pack. I mean, none of us need any more vests. But if it's something that could be on your desk, something that could be behind your desk, something that again reminds you of this GP, when very little else reminds you of the GP, it's a win.

Dare to show that side of yourselves. And, to your point, it doesn't have to be some ritzy, lavish thing. It's taken to Lou Malnati's in Chicago or a deep dish pizza tour. You can go to Gino's and Lou's and all these other ones and show them your town and your experience and dare to make it a human experience as part of your relationship and your partnerships that you have. Get into Winnebago and go around town.

It's like those little things that show you're a real person, because your numbers are going to speak for themselves.

. I'm not a real estate expert. I inherited a real estate private equity portfolio and we had 20 different commitments over the course of a few years. The one group that I absolutely remember in detail was a group that had their annual meeting in a third city, where they took us on property tours. And literally, I know what their strategy was based on them, taking me to two or three of their properties, walked us through the improvements.

And to this day, I can remember exactly what the properties are. I could explain this GP in particular. It's the same with some of my PE clients. If you can go to a factory, if you can go to the location of an investment, there's no reason that an annual meeting needs to be in the city that's the headquarters of the GP. As long as it's not a difficult place to get to, I think it's reasonable to have it in another city.

Have it in the city where there's a portfolio company. Give them a tour. Take them something differently. I have a client who's had their annual meeting in the same hotel ballroom since inception. And it's just painful.

And they know it's painful. They've asked me how to improve it and we've slowly been getting them out of that location. We've slowly been encouraging them to do different food options. But again, we've got contractual limitations based on the hotel. Like, okay, look, you can afford it.

Renegotiate. Do something differently. One point that was also worth mentioning is, once you've had a certain size as a GP, there's also an expectation that the LP assumes, like, I'm paying you a point and a half of management fees and you've got 15 billion under management or 10 billion under management. It should be a nice event. It should have a good speaker.

It should have X, Y, and Z. So once you get to a certain level of AUM, you need to actually think about it. You need to take the planning out of the hands of the admin or the IR person who's done it historically and bring in a professional. Bring in an event planner. One of the things that we haven't talked about is the virtual element to it too.

Virtual annual meetings are going to be part of the process now, also, recording them in some capacity, broadcasting them in some capacity. Again, the benefit is multiple members of the LP community can watch at the same time. It's also something that can be cut and spliced and put into your data room as part of your due diligence package. It does add a regulatory component to it that needs to be thought through. You need to talk to regulatory counsel to think about how you do save it and how long you need to save it, because it's technically treated as a marketing item, like an advertisement.

But, that said, you need to do more than just have a camera, videotaping or broadcasting the presentation if you want it to be effective.

Turn that lens inward, and you're going to have people in person make an experience. But you're also going to have people virtually make sure they have as great of an experience as possible. And that stands out, particularly when 80% of the other firms are doing what they.

Be very cognizant of the limitations. Don't give $250 worth of swag when a public investor who makes up 20% of your commitments can take $25 worth of swag. Again, it's all part of this just thoughtfulness. And again, it shouldn't be in the hands of an IR person. It shouldn't be in the hands of an office manager, an admin, which, to your point, probably 75%, 80% of the GPs out.

And it's not expensive, but it's memorable. And they'll rent out Pat Martin's barbecue and have everyone go there and line up and grab their barbecue with a great band playing. None of that's expensive, but to your point, I really love what you're saying to do something memorable.

Thank you.

That's all we have for today. Special thanks to Brian for joining. If you'd like to learn more about Brian Bank and Kirkland & Ellis, please see the episode notes for links. Please continue to look for the Karma School of Business podcast anywhere you find your favorite podcasts. We truly appreciate your support.

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