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Wen 丨 family office new wisdom point, oral 丨cathy
In recent years, as the wealth management capabilities of family offices (hereinafter referred to as "family offices") have become more and more mature, more and more family offices have strengthened their layout of venture capital and private equity investment.
Overseas, jiaban has long become as mature as pension funds, university endowment funds, etc., and they are important contributors to many primary market GPs. In China, whether it is old money or new money, the proportion of allocation in the primary market is also increasing year by year.
However, there always seems to be a layer of estrangement between the GP and the home office in the primary market. Many domestic gPs simply equate home office with LP, and even think that home office money is "stupid money", thinking that home office does not have the professional ability of direct investment.
Not really. In recent years, the evolution of home office investment in the primary market has been rapid, in addition to investing in GP, it has also carried out more and more direct investment.
So, how should GP correctly understand the relationship with home office? To this end, "Home Office New Wisdom Point" specially invited Cathy, head of asset allocation & policy risk assessment in North America and Asia emerging markets of Abu Dhabi Royal Family Group bzv, to talk about the misunderstanding of GP's cognition of home office and the core demands and logic of home office layout equity investment from the perspective of home office.
Home offices do asset allocation, not investment management. Usually, the family office will do large-scale asset allocation according to its own industry, preferences, needs and cognition. Therefore, in addition to considering the financial value, the family office will also consider other values such as industrial synergy when allocating. Most of the family offices do not have a fixed KPI when allocating large-scale assets, and do not have to pursue how much they must invest every year.
However, many domestic GPs have certain misunderstandings about the cognition of home office.
Blindly equating home office with LP, thinking that home office money is "stupid money".
Some GPs believe that overseas home offices do not understand the domestic market, lack information sources and project sources, do not understand the industry, and do not have the ability to grasp domestic high-quality projects, so they often sit on the ground and shout prices.
For example, if an overseas home office wants to invest in a project, some gPs will push some projects that are not high-quality enough for the home office to follow up.
But what GP doesn't know is that there are other enabling effects of home office, more like war throwing or CVC. For example, for new energy vehicles that are about to be listed, home office can help the value of the enterprise from 10 billion to 15 billion, and can also help it expand overseas markets; for consumer goods going to sea, we have the largest local comprehensive shopping malls in the UK and the Middle East. Now a good project with technology may lack market and long-term capital, and those with good cash flow may expect the resources of the industrial chain, and the business can cooperate to improve the financial value.
Some GPs are more utilitarian. When you need to raise funds, you come out to find you; when you don't need to raise funds, you are treated as if you don't know you. But in fact, it takes a long time to establish a relationship of trust.
GP often divides the home office into head and non-head, and treats it differently.
When many GP raise funds, they often tell them what they think is "non-head" home office: we lp lineup luxury, lp has xx endowment funds, xx head home office, fundraising immediately close. The implication is that these head LPs have invested, and you "non-head" LPs have anything to hesitate about?
GP thinks that this kind of pressure behavior can speed up the decision-making efficiency of the home office, but it is often counterproductive. Because in the circle of home, there is no real head and non-head. Families in different industries are more cooperative relations, and the various offices will often communicate and invest in projects. Even if it is a so-called "non-head" home office, its insights are enough for other family offices and foreign LPs to refer to.
Some gPs do not understand the psychology of home,IR is not professional enough.
Some GP IR is not professional, the professional ability is not enough, do not understand the fund investment project, but every day urge the family to make a decision. Some ir think you can vote before taking it to meet their boss; some ir feel that their boss is a "big coffee" on the top and does not need to meet a "non-head" family.
However, whether IR is in contact with the cio of the home office or an analyst, it is necessary to find out what the influence ability of the family in the home office is, and who is the target of the report. If gp wants to find a home to raise funds, the managing partner does not appear, but only ir appears, then its fundraising is highly likely to be unsuccessful.
Because in our view, investment and fundraising are an inseparable part, if GP wants to find a home to raise funds, we must find an investment team and IR to communicate together. The partners or investment teams of the head gp are more aware of the psychology of home office and communicate more frequently with the family office; however, some head GP are very arrogant, feel that they are not short of money, and are too lazy to communicate with the "non-head" family office; while most waist GP do not understand the psychology of home office.
When laying out equity investment, the family office usually chooses two ways, one of which is as an lp investment GP.
GP needs to figure out the difference between home office and other LPs.
LPs are divided into several categories: one is institutional LPs such as pension funds and endowment funds, one is private LPs such as home offices, and the other is FOF.
Institutional LPs pursue stability, will carry out full-asset, all-regional layout, do not pay much attention to what assets want to do, the most important thing is stability and security, so they are more willing to allocate large PE and buyout funds;
Fof's task and responsibility is to invest gp, in order to improve its own performance, will do more joint investment and S fund;
The equity investment of the home office is more flexible, because the home office has no investment task, does not have to chase the outlet, so as to obtain higher financial returns, but more want to understand what is happening in the whole market.
GP needs to figure out, as lp, what is the core appeal of home investment gp? Is it a financial return? Or a joint venture? Or are you more acquainted with other LPs?
The ratio of GP to direct investment in our family is about 2:8. 20 years ago, we began to invest in a number of large Pe and buyout funds in Europe and the United States, and found that we could only get financial returns. Later, we reviewed and reflected, and found that the blind pursuit of big names does not bring substantive results, and the two sides are more like a state of non-interference with each other. At the time, in order to get more involved in the project, we chose Early stage VC in Silicon Valley. We told them that we could participate in the follow-up rounds of excellent projects and patiently accompany them to grow with them. This sense of engagement is not only tied to the GP, but also allows them to see that in the same project, we can play different values from them.
When choosing gp, our home office usually considers the following points:
First of all, we don't care whether the return of a gp is 25% or 20%, because the financial return is only a foundation, we are more concerned about what is the unique positioning of gp?
What are the advantages over head gp? What is the professional ability? How well do you know about the industry segment? What are your insights into market pricing, valuations, and more?
Second, we will focus on the organizational structure of GP.
For example, who is the composition of the investment committee of GP, whether the members of the investment committee often go to the front line to investigate; for example, what is the organizational structure of GP, what is the size of the number of people before and after investment, and what kind of empowerment and help can be provided to the invested enterprises. Most of the family office does not care how many beautiful words the gp says, but also cares about what help the gp can bring to the invested enterprise, gp is responsible for the invested enterprise, that is, the greatest responsibility for the lp.
Third, we will focus on the organizational management capabilities of gPs.
For example, whether the GP gives young people enough room for promotion, whether there is a spirit of sharing, and whether it can fulfill its promises.
Fourth, we will focus on the engagement of gp founders, the ability to learn quickly and update iterations.
Founders who are not on the front line are willing to hand over power and are willing to cultivate successors.
However, some GPs at the moment are pretentious, very glass-hearted, unable to accept criticism and opinions, and as a result, they lose the ability to self-reflect and iterate.
Times are changing, each generation can seize different opportunities, and equal exchanges can better reflect tolerance and progress.
Fifth, how much say GP has in the project.
The equity ratio can be seen in part, but the needs of the project at different stages are different, usually they will remember the investors who have made significant contributions or influences, and we appreciate the GP who can be recognized and fed back by the project founders.
Sixth, whether the GP is honest and able to reflect and summarize.
Many GPs are very sensitive and refuse to talk about their failed projects, only about which projects they have successfully invested in. Of course, we hope that projects can grow a hundredfold, but in fact, such projects are rare. If it is not angel investment, it is difficult for jiaban to cover up 9 failed projects with a hundredfold project. After all, it is normal to make mistakes or misses, and the home office is a certain fault tolerance rate for the gp, so I hope that the gp can put down the burden of thinking, pluck up enough courage, and reflect on the gains and losses of investment failure or missed with the family office.
Seventh, whether the gp knows what the family office needs, and whether it can help or make up for the lack of professional ability or resources of the family office.
Sometimes, GP don't worry too much about whether the family office will invest in your fund, after all, it takes a while to understand and investigate; don't worry about how much money they invested for the first time, which does not represent their budget. In the cooperation, we can directly see the GP's understanding of the project and whether the styles of both sides can work together.
Another way to lay out equity investment is direct investment. According to my observation, the larger the scale of a family office, the more industries involved, the more inclined it is to do direct investment, rather than GP investment.
Because for the family office, only investing in GP is about the same as sitting at home waiting to receive money, unable to really participate in and contact the project, which is not a good thing for its own growth.
So, what are the advantages of home office direct investment?
First of all, most of the family money is long money, so there will be no 5+2 exit period limit, so it is more daring to invest in some projects that GP dare not invest in.
For example, many GPs are now investing in the consumption track, because GP feels that consumer projects are growing rapidly, and after investment, there will be people who will take over the market in the future, and the exit method is more flexible. However, China is actually very short of hardware and software, and many investors believe that the investment period of the software and hardware industry is very long and do not have the patience to wait. The money run by the family is long money, and it is more hoped that through investment, it can really change the development of certain industries, so it is more daring to invest in industries that financial investors dare not invest in.
In addition, most GPs have exit deadline restrictions, and even some GPs use the invested companies as pawns to rush performance in order to raise funds, rather than being really responsible for the company.
There is a word called "wind outlet", for example, a is an early investor in a company, so it forms a bureau and determines who will lead the B round, C round, and D round. In order to get more benefits for himself, the investor desperately urges the development of the enterprise, so he finds a receiver, so as to retire from fame and success, and he will no longer care about how the company's follow-up business development is.
Secondly, if a family invests in a company, it will be responsible for it, and it will provide the company with more industrial resources and business cooperation behind the family, which GP cannot provide.
Of course, some GPs may question whether the home office is not professional enough to do direct investment.
But in fact, most family offices will raise a team to do direct investment, and the members of the direct investment team are mostly from the industry or GP, and there is no difference between the two sides in terms of staffing. And some of the best people in the GP will be very willing to jump out if they can't get promoted and can't show their talents. What's more, the empowerment given to him by the family office will be much more than the empowerment given by the GP. GP can only give money and often can't cash in, and in addition to giving money, the various resources behind the home office will form a great attraction for professionals.
Underwater projects are not so easy to find and invest in, and it depends on what value you can provide for the project, which others cannot provide, such as technology, capital and markets. In this regard, the family office is often more patient in business collaboration, so it is not so much professionalism as mutual achievement.
In terms of project sources, first of all, the family office is a very united group, today you push a project to me, tomorrow I share another good project with you; secondly, in the industry to find upstream and downstream opportunities, even if some of the home office is a pure financial investment, they will also do research and see projects every day like other investors.
Therefore, when GP questions whether the home direct investment is not professional enough, it may wish to see whether it is in the front line and whether it understands the professionalism of others. Maybe we all need to reflect, are we better today than we were yesterday?
Note: The article is the author's own opinion, the content and opinions are for reference only and do not constitute any investment advice.