Ten years after the financial crisis, the private capital industry is flourishing. According to Preqin data, as of August 2018 there are more than 3,700 private equity funds in market, seeking an aggregate $831 billion in institutional capital. In addition, the term “private equity” now only tells half the story. For companies seeking loans or access to credit, these funds have become an important alternative to banks, which face more stringent regulations that have forced them to refocus their business priorities. As activity continues to migrate from the banking industry and public markets to private capital firms, the credit and lending businesses once dominated by banks have found another home.
At the same time, competition to attract investment and talent and to generate returns remains top of mind for private capital CEOs. These CEOs, many of whom are part of a new generation of leaders, face heightened expectations from their investors, employees, and society at large.
Private capital leaders can draw on the lessons of bank CEOs, who emerged from the financial crisis facing populism, broad mistrust, regulatory scrutiny, investor lawsuits, and a loss of talent to industries that are perceived as more lucrative and purpose-driven.
Treat reputation as an accretive asset
During and after the crisis, much of Wall Street made its debut to Main Street amid unprecedented distrust of its practices, putting banking brands at a disadvantage from the start. Bankers had to communicate authentically and powerfully to justify their existence and demonstrate a human side and social purpose on behalf of the entire financial industry.
For many years, private capital firms have been able to grow significantly while staying under the radar. As firms grow, the value and visibility of their brands also increases. Establishing a strong brand during the good times is ideal. When a firm manages several billion and invests in real estate, distressed assets, or other complex or real assets, it is inevitable that certain routine business transactions will be subject to misinterpretation. Something as procedural as a bankruptcy court proceeding within a distressed situation has the potential to cast a negative light on a firm’s brand if it is not well-established ahead of time.
Tell your own story
Today, more than 50 percent of Americans receive their information outside of traditional media, making the use of social media platforms and direct communications with consumers a necessity. While the financial industry has been late to adopt digital communications methods due to compliance restrictions, online mediums, including social channels and dynamic, user-friendly websites are now essential for any sizeable company operating within the capital markets. It is no accident that most large private capital firms have modern websites and social media channels that not only provide investment updates, but also include news related to their culture and mission. Whether the audience is a young executive seeking a new opportunity in finance, or a shrewd investor seeking real-time, accurate, first-hand information, a strong online presence has become essential for all mature companies that need to communicate directly, quickly, and authentically with their key stakeholders.
Lead with purpose and cast a wide net
According to a recent Financial Times article, “By setting up huge lending arms, they [private capital firms] have been transformed from heavyweight dealmakers that took stakes in companies into the principal bankers for a large tract of corporate America.” With great power comes responsibility. More than 75 percent of respondents to Edelman’s most recent Trust Barometer indicated that they expect CEOs to be visible sharing the company’s purpose and vision, and over 70 percent want to see CEOs discuss work their company has done to benefit society.
Gone are the days when a firm could remain silent on issues apart from its financial track record; private capital CEOs and executives now routinely address environmental, social, and governance (ESG) practices, diversity initiatives, and select geopolitical matters as part of their license to operate. Audiences beyond investors need to understand their impact and social purpose as these firms ascend into a more dominant role within the capital markets.
Transparency drives investor trust
Ninety-three percent of respondents in the 2017 Edelman Trust Barometer: Investor Relations survey say that keeping your investors well-informed creates trust. Of course, establishing a predictable cadence of communication with investors is essential to creating trust. But this only goes so far. A firm’s willingness to be forthcoming about developments, including missteps that have the potential to provoke criticism from investors and other audiences, plays a critical role in establishing this trust.
Opting for full disclosure with investors is not only the ethical standard that fiduciaries must adhere to; transparency is also paramount to a firm’s ability to preserve trust and credibility, especially during times of uncertainty. While trust may seem to be an abstract concept, it can also be a competitive advantage for leaders that have successfully cultivated it.
Ten years following the financial crisis, the private capital industry is now well-positioned due to a confluence of factors, including strong returns, diversified offerings, relatively limited regulations, and top-tier talent. The industry has been able to learn from and avoid many of the pitfalls that tested their banking predecessors. It is now up to the next generation of private capital leaders to fully realize the value of a steadfast commitment to proactively managing their firm’s reputation.
Renee Calabro is executive vice president and Head of Capital Markets, New York.