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Areas of Interest
In order to get more of the deals you want rather than having to invest in what is available, your firm should develop differentiated approaches to other market participants:
- Financial Sponsors – Be viewed as a preferred investor; early look opportunities; favorable access to partners and management teams
- Banks – Inclusion in pre-marketing syndication processes; create advocates for favorable allocations
- Companies– Viewed as a reasonable, high-quality investor that is willing to share perspectives and insight
Potential Benefits
There are a number of potential benefits, both financial and non-financial:
- More Good Deals – Opportunity to deploy capital to quality deals with quality backers
- More Exclusive / First / Early Calls – Get there before the rest; more time for diligence and approval
- Larger Allocations – Opportunities to help build momentum by placing anchor orders; allocation bumps
- Proprietary Insights – Executive introductions to sponsor management teams and banker contacts; potential proprietary insights
- Relationship Investment Analysis – Incorporate qualitative, but structured, assessments of sponsors, companies, and banks into your decision-making process
- Improved Access – To sponsor partners and company management teams
- Better Market Intelligence – Active monitoring, idea flow, sharing of insights; executive transitions; company litigation
- Efficient Origination Efforts – CTM via bankers; conference cross-checks; sponsor vintages
- Firm-wide Brand Promotion – Easy to use tools that provide the right data at the right time
- Differentiated Marketing – New ways to show investors how the firm is different and continues to evolve to outperform competitors
- Proof of Commitment to Brand – Tools that demonstrate how the firm is assessing its relationships
Available Resources
In addition to having capital to deploy, your firm has other assets that could be utilized:
- Intellectual Capital – Sector expertise; insights into companies and sectors of interest to sponsors
- High-Quality Decision-making – Efficient processes; ability to reach a conclusion promptly
- Investment Stability – Follow-through on unallocated commitments in secondary markets
- Considerate Relationships – Consistent sharing of prompt, candid feedback; reasonable approach to terms, amendments/waivers, and management access requests
- Expert Contacts – Ability to make introductions to sponsors and bankers
- Fees – Holistic approach to banks’ origination efforts when awarding CLO mandates
- Risk Relief – Ability to help banks manage commitment and distribution risks by helping build syndication momentum
- Data Goldmine – Capturing and leveraging data can make all this possible
- Process Execution – Wide-spread adherence to adopted protocols ensures seamless operation and messaging
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How much incremental OID could be gained?
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Firms that create preferred relationships with financial sponsors and capital markets groups can gain favorable treatment during syndication processes. That could mean a portfolio with larger positions in the deals your firm really likes. It also means getting more OID from those deals.
This calculator allows you to model how much more OID could be captured. Use it to see how many millions of dollars could be earned by creating RApportTM.
Example
The default parameters assume 120 deals per year, average commitments of $15mm, and allocations of $3mm. There are distribution assumptions for both the percentage of deals with a given OID (e.g., 40% with 25 bps) as well as the percentage of deals that receive an allocation in excess of your firm’s average (e.g., 35% receive a bump of $1 mm for a total allocation of $4mm).
The default example shows the result of effectively creating RApportTM could be a ~100% increase in capital deployed and a 95% increase of OID captured from preferred investments. That would translate to an incremental $1.54 million obtained from those opportunities.
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How can RApportTM help apply the
Principles of Influence?
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Facts and processes that reinforce your point can affect a desired outcome
Reciprocity
Idea generation for sponsors
Sector expertise
Insight into target companies
Executive introductions
Pro-active anchor orders
Relationship Investment Analysis (aka Balance of Trade)
Scarcity
Ability to make large commitments
Willingness to place early anchor orders
A limited number of introductions
Exclusivity of insights
Frequency of early commitments
Relationship Investment Analysis (aka Balance of Trade)
Authority
Sector activity: # deals / market share / top buckets
Early / exclusive looks provided by others
Involvement in recent deals; by sponsor
Firm’s risk profile / structures / terms
Anchor commitments
Average share of quantum by company / sector / sponsor
Consistency
# deals involved w/ sponsor or bank
# of sponsor portfolio companies
Frequency of early commitments when given the opportunity
Typical hold periods
After-market activity to reach commitment levels
Liking
# of previous deals together both as a firm and personally
Appreciative, personal comments during meetings and other events
Systematic congratulatory notes regarding successful transactions with other firms
Alignment of coverage between firms
Systematic monitoring of news source to recognize matters of personal interest and generate personal notes
Optimization of invitations to entertainment/relationship building experiences
Consensus
Sector activity: # deals / market share
Early / exclusive looks provided by banks and sponsors
Average share of quantum at issuance
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What are some of the things you will be able to say?
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Multiple Principles can be reinforced with a statement
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See how other groups
can generate alpha
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