How Private Equity Can Use Better Branding
Imagine that the former face of your prominent private equity firm is now more famous for lurid emails to his female assistants, losing important deals to competitors and telling everyone that you fired him after he quit.
Suddenly, your house is ablaze and what you say and how you say it becomes the difference between a severely damaged reputation and your firm’s future growth.
While this true-to-life example comes from a recent situation in which I was asked to consult, it highlights why brand building and communications have become more important than ever for private equity firms.
Think about it: if your firm has a strong brand, then you can withstand such reputational crises, fend off competitors and quickly regain a foothold with proper assistance.
Based on my experience, I’ll go further and suggest that a strong brand helps private equity firms source the best deals, raise the most capital and attract the most desirable employees.
It directly translates into higher awareness, greater cache and stronger deal flow. A strong brand can even result in proprietary deal flow, which means fewer of those troublesome auctions.
The downside to not having a strong brand? Private equity firms that ignore branding and effective communications put themselves at risk of competing solely on price (valuation and terms).
And please don’t confuse branding with making a cosmetic fix.
For example, remember when Bill Ackman’s Pershing Square Capital Management tried to ditch the term hedge fund for the less evil-sounding alternative asset manager? Or when Cliff Asness’s AQR Capital rebranded itself as a diversified asset management company, which came across as sounding so broad as to be meaningless to everyone within an earshot?
These days, due to the proliferation of dry powder and fierce deal competition, it continues to be a seller’s market. So it’s difficult for firms to find quality businesses at price points where their risk-adjusted target rates of return on invested capital are reasonable.
As a result, asset managers face increasing demands from stakeholders. And success is no longer just about returns, but figuring out how to differentiate your firm from the competition and then successfully communicate these advantages to limited partners, portfolio companies, investors, prospects and media.
Getting the best deals is no longer just about competing on price, but on what longer term strategic advantages your firm offers.
This is why private equity firms can benefit from better branding and communications.
Now, how do you accomplish that?
Whether you are in private equity or another business, the process is the same.
To start, be aware of the effective branding trends that are occurring in your industry, and then address them head on.
Here are a few to consider:
1) If you think you are communicating enough with your stakeholders, you’re probably not
These days, your stakeholders, especially investors and limited partners, are demanding proactive and transparent communication.
Don’t be fooled, they know you only call when it’s time to fundraise.
Further, their appetite for information is growing more insatiable. They want information about the portfolio companies in which you invest, from the management teams and competition, to market developments and diversity (an ever-growing concern for those firms whose clients include state and federal pension funds).
2) Differentiate or die
Ok, that’s a bit strong. But since competition is so fierce right now in fundraising and throughout the bidding process, private equity firms must develop and grow their brands or get lost in the clutter.
This means you have to clearly articulate your vision and values to stakeholders in order to win. Capitalize on positive news and demonstrate your expertise to everyone who matters.
A good place to start is refining your investment philosophy and identifying those core values that support it and allow your firm to deliver. Don’t simply focus on what everyone else does – past performance, transparency, excellence. Sure they’re important, but what will really set your firm apart from the clutter are those unique qualities that really position you as different and THE best alternative to the competition.
Also, keep in mind that these qualities have to be based in reality. In other words, demonstrable. Just because you say it, doesn’t make it so.
For instance, consider Goldman Sachs’ odd attempt at rebranding itself as a startup tech company. If Lloyd Blankfein’s pronouncements about being “a technology firm” or “a platform” didn’t convince you, then you had the same reaction as everyone else (Goldman is now a what??).
We can certainly credit them with trying, but it’s hard to create such a quick transformational narrative around a 149-year-old bank as being hip without doing the necessary branding work to get you there.
Don’t make the same mistake. Do the work.
For example, for our challenged PE client mentioned earlier, we conducted objective, third-party branding exercises to hone their messaging and narrative, developed a thought leadership program and identified key differentiating attributes. We then used this information to help reposition our client among its competitors to drive business.
3) It’s about your portfolio companies, not just you
Certainly, the most effective way your private equity firm can demonstrate its performance is through the success of its portfolio companies. So use these successes as opportunities to articulate how your firm is supporting these investments.
This kind of information can boost deal flow, better position your firm as a leader in its field and help recruit the best talent.
4) Channeling success
Picking the right channels to highlight the value your firm brings to limited partners, portfolio companies and other industry stakeholders is as important as your message.
Whether it’s through the media, your website, thought leadership content, social networks or conference appearances, the question to ask is where are my prospective investors and partners consuming information?
That’s where you should be.
As private equity firms increasingly have to compete for dollars and deals, finding a way for your firm to stand out is now more critical to success than ever.
Branding and communications will enable you to differentiate yourself from the competition, and that means being bigger, bolder and braver in your approach.
Remember, what you say and how you say it matters to your stakeholders.