Private Equity: Palico: Online dating for LPs and GPs
As our main feature reveals, there are more than a few private equity limited partners (LPs) facing resource problems as the industry fragments and spreads beyond the traditional centres of North America and Western Europe, at the same time as disrupted investment cycles clog up the cash-distribution and fundraising pipeline. LPs are struggling to keep abreast of new managers and markets, or even stay on top of their increasingly crowded and complex portfolios.
It would help if there existed an electronic marketplace for the asset class – or at least some kind of online dating service. ‘European LP seeks Asian infrastructure equity specialist, raising at least its second fund, with 10 or more investment professionals. Good sense of humour essential.’
Step forward Palico. Founded in mid-2012 by Antoine Dréan (who founded Triago, Europe’s first independent private equity placement agent, 20 years ago) and Cédric Teissier (a private equity lawyer), and working from New York, London and Paris, Palico is that dating service.
Technically a broker-dealer (a member of FINRA in the US and licensed by France’s AMF in the EU), Palico is the first regulated electronic platform bringing together LPs, GPs, placement agents and gatekeepers from more than 100 countries.
In truth, rather than a dating service, it is more like a virtual conference exhibition area. As part of its two-year set-up project, Palico built basic profiles of almost 6,000 GPs from public data, bringing them together as stalls in their marketplace and tagging them according to certain investment criteria to make them browsable. As GPs subscribe to the service, they take charge of their stalls to tailor the information and, because it is a regulated broker-dealer environment, they can begin to use it as a platform for putting out messages before, during and after fundraising.
Just like in an exhibition area, LPs can browse Palico anonymously. When they find a good match, they can request the GP’s ‘Confidential Documents’, which usually includes the Private Placement Memorandum, at which point both LP and GP identities are mutually revealed.
“This gives some of the smaller mid-sized GPs access to LPs on a level playing field with the big names, which they would never otherwise enjoy,” says Dréan. “GPs also know that the LPs that approach them are genuinely interested – which is much better than taking a scatter-gun approach to attracting LPs’ attention and improves everyone’s workflow.”
For hard-pressed LPs, the platform enables comparison of all the GP teams, due-diligence materials, fundraisings, secondaries and co-investment programs in strategies of interest, while a handy dashboard is automatically updated with news on strategies of interest and other GP communications. They can also anonymously gauge interest in potential secondary sales with the option – but not the obligation – to conduct commission-free auctions via Palico.
It all sounds very convenient. But given the evidence that GP performance is pretty stable from one fund to the next, and that LPs therefore tend to re-up with the best managers in their portfolios, wouldn’t they be forgiven for suspecting that Palico attracts second-rate GPs trying to sell their wares?
Dréan counters that even a five-star Caifornian GP recognises that it can no longer sit back and rest on its CalPERS and CalSTERS laurels. Commitments from re-ups are getting smaller and the desire for a diversified LP base is growing.
“LPs also like to use a small part of their annual commitments to check out new managers, and because ticket size has come down considerably from the days of the big LBO, they are necessarily looking at more GPs,” he says. “That’s before we even get onto the subject of new markets, where the challenge is to begin mapping them out and getting a sense of who they should know.”
Palico’s numbers make the case. It ended 2012 with over 750 members, 50% more than it targeted at inception. It reckons the universe of potential members is about 25,000-strong, and it hopes to sign-up a third of them. Today, around 60% of members are LPs (including Temasek, Korea Investment Corporation, Caisse de dépôt et placement du Québec, the South Yorkshire Penions Authority and ADIA), 30% are GPs and 10% are advisers.