How Keeping an Investor Costs Less Than Finding a New One

In comparison to existing investors, a new allocator considering a manager for the first time will need to assess strategy, track record and operations. The review can cover governance and compliance, financial reporting and valuation, technology, and oversight of service providers, and can take several weeks to months. As such, the conversion rate from the first meeting to commitment can be limited, and a fund may require many investor meetings before closing a deal.

None of that applies to an investor who has already committed. The evaluation has been done already, and a strong relationship exists. A repeat commitment removes both the preceding search and reviews, cutting a lengthy process short and easing the fundraising process for both parties.

For most managers, the most realistic source of capital for a new next fund is the investor base they already have, that new relationships build on rather than replace. As a result, success in fundraising can depend on the same investors returning. A step up in fund size generally reflects existing investors committing more. The capacity to grow across funds, therefore, rests on the quality of the relationships already in place.

Re-commitment decisions are formed over the life of the fund. Investors weigh how clearly a manager reports, how issues are handled, and whether the leadership is robust. By the time a manager returns to the market, allocators have built a significant opinion of the manager. As such, strong investor relations can smooth the next fundraising process.