More LPs Are Investing With Managers They Haven’t Met — But Many Remain ‘Uncomfortable’

Incumbent managers have the edge as investors continue to grapple with the constraints of the pandemic, according to an Eaton Partners survey.

Krisztian Bocsi/Bloomberg

Krisztian Bocsi/Bloomberg

Six months into the coronavirus pandemic, roughly two-thirds of institutional allocators are willing and able to invest with managers they haven’t met in person, according to a new survey.

It’s a dramatic change from investor attitudes before the Covid-19 lockdowns, when in-person meetings were seen as essential for evaluating prospective managers. Now, with the vast majority of investors expecting that physical meetings won’t occur until at least early next year, more are relaxing their requirements for making allocations, according to placement agent Eaton Partners, which conducted the survey.

“People thought that this was going to be a two-month shelter in place, and then back to normal,” said Peter Martenson, a partner at the firm, which is owned by Stifel Financial. As it became clear that social distancing would remain in place for much longer, he added, investors “realized they couldn’t go forward and invest if they didn’t change their policies.”

According to the survey, the largest portion of investors — 45 percent — currently expect in-person meetings to resume early next year. The second-biggest group (38 percent) suggested it would be later in 2021. Just 11 percent expected to have physical meetings before the end of this year.

Despite these constraints, a third of surveyed investors reported that they were still either unwilling or unable to invest with managers without having a physical meeting.

“A good number of LPs are still unwilling to do it,” said Jeff Eaton, a partner at Eaton Partners. “It’s something that’s uncomfortable to them.”

Anecdotally, Martenson reported that some investors have already taken in-person meetings using social distancing precautions. However, those are the exception to the new normal. “It’s become clear that a lot of LPs, by policy and safety considerations, will not be taking meetings until mid-Q1 at the earliest,” he said.

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For now, investors have indicated that they are focusing more on making additional commitments to their existing private capital managers, rather than seeking out new manager relationships.

“Without a doubt, incumbents have the advantage as they’re viewed as safe,” Eaton said. “That said, some of our best fundraises this year have been emerging managers.”

According to the survey, 37 percent of limited partners were focused on re-upping with their incumbent managers, while 8 percent had prioritized investing in new strategies run by their existing managers. Fifteen percent, meanwhile, were focused on investing with new managers. The remainder reported that they were targeting all three types of investments.

While lesser-known firms are more disadvantaged by the pandemic restrictions, Eaton said that emerging managers can win the trust of limited partners by going “above and beyond” with access and communication.

“Engage the LP as a partner, embrace the virtual environment, do a lot more videos, be willing to get on Zoom and answer questions,” Martenson added. “It’s a high bar, so you need to put your best foot forward.”