As a venture investor, we often bemoan churn in our SaaS companies but we’re also seeing churn in our LP base too. Increasing staff turnover in the LP world has been a trend for several years and it has implications for institutional portfolios and private investment managers alike.
If you’re a GP, you should know by now that you need to have at least two solid personal contacts at each of your LPs because one of them is likely to turn over in less than 5 years. And if you’re an LP, you’ve seen your friends move to new platforms much more quickly than in the past. Just take a look at the open jobs on ILPA.org or Trusted Insight! This churn is the result of so much more institutional capital trending into private strategies. We’ve seen that trend move from the E&F community into private and public pensions. We’re even seeing retail capital inroads into venture and private equity in a search for returns.
So what does this mean? I will strongly argue that staff churn is highly damaging to institutional investors. It takes years to properly train even the brightest new LP. I used to say 18 months before you even have any context. It takes even longer to build a portfolio and begin to learn from a terribly long feedback loop. And then team turnover inevitably causes a strategy reset as the new staff looks to distance themselves from the “mistakes” of the prior team. A portfolio can be successful even with the inherent turnover but I think it takes consistency of leadership from the CIOs and Board (where you’ve also seen turnover). These leaders are recognizing the high cost of churn in the private portfolio, and have begun recruiting and paying more for talented, experienced individuals to lead their private programs as it is generally the only part of the total portfolio with expected returns greater than the required payout rate.
As a GP, I believe you now have to underwrite meaningful staff turnover in your LP base between funds. I mentioned having more than one contact at your key LPs. I think it’s also wise to carefully consider diversification in your LP base by understanding the strengths and weaknesses of each group as both a capital source and a platform for your individual contacts. Are they likely to stay? What is their system of governance? and basis for their compensation? How do you fit in that portfolio if the team changes? I think you should plan for 10-15% churn in your LP base. Sometimes you get lucky and get a 2:1, the existing institution returns and your former lead relationship bring in their new institution. That’s great when you can continue relationships, but do you have a pipeline of prospects to replace those that turnover?
GPs are wisely paying a lot more attention to not only where their capital comes from (and what causes it supports) but also to just how likely it is they have the same point person that understands their strategy and values the relationship that is built over years.
I’m particularly sensitive to this topic as I’m currently aware of several great opportunities that have surfaced in my network. I would love to help place great people in these roles.
Two Senior Leadership Roles
I know of two very senior roles that aren’t currently advertised. Each of these roles has a focus on venture and are amazing opportunities with a compelling platform. One on the east coast and one on the west coast. These are the kind of opportunities that would have been interesting to me in my prior life. I can’t say more but encourage you to reach out if you have real venture experience in funds and/or directs.
Two Mid-Level / Senior Roles
We have two LPs that are either adding staff or have experienced churn. One is looking for a lead private investment manager at a large foundation with a great cause. I also like the new CIO greatly and I know the board is very supportive. You would inherit a good portfolio and have an opportunity to lead the private program.
Another LP is looking to add an experienced mid-level role with an emphasis on growth equity/buyouts. They are open to someone with fund experience but also someone with a direct background. They have a great team in place and you would be joining world-class investors that take their craft very seriously. They are based in Charlottesville, a great town very similar to Boulder.
It’s also worth saying that every one of these roles is seeking to add elements of diversity to their team.
So, I suppose I’m actually encouraging more churn but would love it if you let me play matchmaker for one of these roles. And even if you’re not really looking, I’d be happy for the chance to connect with you for future opportunities. I’ve been very lucky to build a good network of friends in the LP community over the last 15+ years and I hope to share these opportunities when they arise.
I’m easy to reach – Lindel@foundrygroup.com