However, that means relatively cost-effective alternatives that can scale fundraising across the EU are ignored. These methods may become more important as domestic woes make raising at home more difficult.
In the session sponsored by Campbell Lutyens, Gen2 Fund Services and KPMG Luxembourg, it was noted that investor relationships in Europe could play a more strategic role in fundraising in the future.
This will require US-based private capital managers to shift from an opportunistic approach, to one that better meets their longer term needs.
Below we summarise the three main conclusions:
Diversification continues to drive LP demand for US funds.
European LPs have historically been under-allocated to private markets compared to their US counterparts. However, this trend is improving, driven by the growth of the private wealth segment.
Despite a challenging year for fundraising, conditions are easing, with more oversubscribed funds and shorter fundraising periods.
The panel offer the following top tips:
- Leverage your existing LP relationships to advocate for your firm and make introductions to investors across the pond.
- Build fund-of-fund relationships who can provide a single point of access to European LP capital - and are often used as a one-stop shop for investors to build US portfolios.
- Get a good pair of shoes! London, Paris and Stockholm are important hubs for courting investors.
Meeting face-to-face is essential for fundraising roadshows in Europe.
The panel commented on the diversity of markets and cultures when on the fundraising trail. European LPs are keen to engage in-person and regularly attend industry events like IPEM to build new relationships.
The domestic situation in the US has reframed the European opportunity, with managers asking if the time is right to expand investor relationships in the region.
Yet many US GPs hesitate on Europe's doorstep, intimidated by a reputation for complex and expensive regulation.
The speakers set the tone for what to expect when engaging with European LPs:
- Expect the first question to be about Trump. The current administration's impact on US opportunities is more of a concern for institutional investors but less so for private wealth and family offices.
- Building relationships in Europe requires significant travel and understanding of local tax and legal jurisdictions, if relying on reverse solicitation.
- European LPs are increasingly interested in US strategies, seeking diversification and exposure to specialist strategies. Be prepared to position your fund accordingly.
Take an incremental approach to market entry.
For US managers considering expansion into Europe, it's inevitable that they wish to minimise costs in case they fail to see the appetite.
There are three steps to build presence incrementally:
- The Straightforward Approach: Reverse Solicitation or Private Placement: This entry-level approach allows managers to test the waters without establishing a significant presence in Europe. It involves leveraging existing relationships and adhering to local regulations, which vary across countries.
- The Intermediary Model: Using a Third-Party AIFM: Engaging in pre-marketing activities helps to comprehensively gauge interest and refine product offerings. Registering with a third-party AIFM is relatively low cost and provides a passport across all countries in the EU to assess demand. This involves registering potential products under pre-marketing rules, allowing managers to explore demand across Europe.
- The In-House Model: Establishing a European Structure: Used when the fund manager is certain they will be fundraising within the EU on a continual basis. This involves setting up a team "on the ground" to have an in-house AIFM. Usually this happens when the level of coordination required with a third-party AIFM is not equal to the cost or complexity of managing an external service provider. Managers typically have a minimum AUM of $2.4bn, according to KPMG's own analysis, and costs range into several hundred thousand of dollars.
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