Manish Sarwal, Deputy Head of Finance, at Impax Management.

Manish Sarwal is speaking at Private Markets Investor 2023 conference in London in March. Please click here to see more details about the agenda and how to register. 

Andrew Putwain: In terms of the key “ingredients” can you give us some details on what you see as important about that?

Manish Sarwal: An important difference between listed and private funds is that listed investors can typically redeem on short notice, usually within a week and sometimes a day. Private fund investors are typically invested for the life of the fund which is usually ten years or more.

While an investor can redeem at any time that can create a natural pressure to constantly engage with them to ensure they are happy and understand what you are doing. In private funds the cardinal sin is to bring an investor into the fund, then think they are locked in, so you only engage with them again when you need to fund raise for a successor fund.

"Too many managers simply think that their quarterly reporting and Annual General Meeting (AGM) are sufficient. That is just the baseline."

To have a truly successful private client relationship you should treat them as if they can redeem tomorrow, even if they can’t. Unsurprisingly the key is communication. I have never heard of an investor complain about receiving too much communication from the people managing their money. That’s not to say you should drown them in large reports, but that you have a plan for regular concise updates on what you are doing, why you’re doing it and the progress you’re making. Increasingly investors want their fund managers to provide them with industry insights and market interpretations, providing investors with more than with financial returns. 

Too many managers simply think that their quarterly reporting and Annual General Meeting (AGM) are sufficient. That is just the baseline.

Andrew: Can you talk us through specifically what are the main positives to both sides of a long-term relationship in terms of keeping costs down and achieving respective goals?

Manish: There is increasing sophistication amongst investors on costs. This has been a trend for some time which has ramped up these last five to ten years, and rightly so. We particularly see this when comparing the gross return and the net return of a fund. Effectively how much did the fund manager make on the individual deal versus how much the investor got after paying all the overhead cost of the fund and the manager’s fee. The investors only get the net return so a fund manager who boasts of superior returns on a deal but then returns only modest net returns is shooting themselves in the foot.

"The manager is ultimately looking to deliver superior risk-adjusted returns to their investor."

The key here is for managers to control those costs. That sounds obvious, but the difficulty is that the cost of those overheads are also going up: administrators, auditors, depositary, and advisors costs all increasing. Managers need to balance delivering excellent service and delivering value to clients in line with rising costs.

The manager is ultimately looking to deliver superior risk-adjusted returns to their investor - cost control is a big part of that, and they don’t want to see the value of their deal eroded by overheads.

Andrew: What would your advice be to others in the market on how to achieve this?

Manish: I have already mentioned communication of course; what is important is to treat your investors truly as partners. They have committed to being in the fund for its entire life cycle: they deserve to be given the rationale for the investments you are making, what’s the business plan for them and then be given regular updates against the plan. Investors choose to invest with a manager for them to deliver a certain investment strategy; what these updates also do is to ensure that the manager isn’t suffering from ‘style drift’. Essentially, they should be delivering on the strategy they said they would.

"My experience is that a quick way to cause frustration and look disorganised is to send unexpected cash requests."

Treating all investors as the same, regardless of their size or profile, can be hard in practice to do. You need to ensure consistency in your communication and engagement. It is very transparent to others if certain investors are getting more access to the manager or more insight.

Finally, do take the operational issues seriously. For example, treasury management with private client investors is key, i.e., them knowing when they will get their next drawdown request and how much it will be. Investors ideally need forecasts that go 12 months out. Obviously, they are just forecasts, but they should be taken seriously, importantly if things do change then investors should be given proactive updates. My experience is that a quick way to cause frustration and look disorganised is to send unexpected cash requests.

Manish Sarwal is speaking at Private Markets Investor 2023 conference in London in March. Please click here to see more details about the agenda and how to register.

 

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