The State of Branding and Communications in Private Equity
Speaker: Charlie Ittner, Founder and President, Darien Group
Introduction
The state of branding and communications in private equity has changed considerably since the industry's early days.
In 2004, I took my first job out of college at Platinum Equity in Los Angeles, as an assistant to the CEO and Founder. As I started learning about the private equity space, I became aware of Platinum's competitive set and other peers, and I was amused at the number of firms named after Greek and Roman deities and mythology.
I studied quite a bit of the classics in high school and college, and so I had some inherent understanding of the identities of these grand-sounding, but otherwise nondescript names.
Apollo, God of Prophecy. The arts and the sun.
Pomona, Goddess of Abundance and Plenty. Also, the university that I went to.
Odyssey, the magnum opus of Homer, synonymous with journey.
Ares, the God of War. Who, according to Wikipedia "personifies brutality and bloodlust." So we're getting into some more tonally ambiguous territory here.
And my favorite of all, Cerberus. Cerberus, the hound of Hades, was for the Romans, the three-headed dog guarding the gates of hell. What an odd and intimidating choice of brand name for an investment firm.
By 2007, during Cerberus's high-profile acquisition of Chrysler, co-founder Stephen Feinberg addressed the firm's name, saying that it "seemed like an engaging name at the time but that it was a big mistake that we are now stuck with."
I tell you all this to illustrate that what constitutes good branding, or even reasonable branding in private equity, has come a long way from the 1990s to 2007, and from 2007 to today.
About the Speaker
I'm Charlie Ittner, the Founder and President of Darien Group, a branding and communications agency created for clients in the investment management space, and I've been working in private equity marketing and communications roles for over 20 years.
I founded Darien Group in 2015 to fill the middle of the Venn diagram between great creative services and true fluency in the investment management industry.
We're here today to talk about brand and private equity. How do we define it, and how do we measure its impact? Branding is a pretty soft science for the world of private equity in which people tend to be more comfortable with the quantitative than the qualitative.
Lessons from Platinum Equity
One more note from my days at Platinum. By 2008, I was managing the firm's marketing function, which was largely a heavy outbound promotional program in service of sourcing transaction opportunities. You may need reminding that 2008 was so long ago that physical direct mail was still a key channel. Platinum invested heavily in beautiful, well-written, professionally printed mailers that went out several times per quarter to a distribution list in the tens of thousands.
I was responsible for this work stream. It was a large effort, and it was not cheap. Thinking myself quite clever and probably trying to avoid some of the work involved in these projects, I suggested to Platinum's founder, Tom Gores, that we get modern and move past the physical mailer. Go digital - email only. After all, these pieces were so expensive.
I'll never forget his response.
"Charlie," he said, "We're in a high-margin business." "If we get one deal from these mailers, it justifies 20 years of doing them."
Tom was right. Private equity is a high-margin business. The right Limited Partner can anchor a key fundraise, transforming a firm's development arc. The right acquisition can compose a huge percentage of a fund's performance. The right hire can be a star dealmaker, or capital raiser, or operator, adding value far beyond their compensation.
Single individual decisions make huge impacts. And yet, the industry as a whole has been very, very late in leveraging the power of branding and digital marketing, critical capabilities for nearly every other business model on the planet to influence these crucial individual outcomes.
Industry Evolution
When I started Darien Group almost ten years ago, it was difficult to convince most prospective clients of the value of a website beyond providing contact information. Today, investment managers - particularly large ones - are catching up with the times. Blackstone is Exhibit A - have a look at their website, LinkedIn, or YouTube channel and consider the amount of time that CEO Jon Grey spends in front of a camera to evaluate how valuable they view branded communications as being. He's not doing all of this just for fun.
But for the industry in aggregate, there's still a long way to go, both in terms of adoption and in terms of strong execution.
Defining Brand in Private Equity
We've hit obliquely on brand via the examples of Cerberus, Platinum, and Blackstone. How do we define "brand" in private equity more directly?
A website, a pitchbook, a series of media appearances, gossip at SuperReturn? None of these things represents the totality of a firm's brand.
In need of a definition for the sake of this video, I wrote the following: The brand of a private equity firm is the sum total of all interactions with and perceptions of that firm, its people, and its presence by all the different constituents within that firm's ecosystem.
Of course, now we have to define the terms used within this definition to make sure we're all in the same zip code.
Interactions
Interactions - these can be in person, such as an investment professional meeting with a prospective asset seller or management team member, or asynchronous, an LP reading a Year-in-Review piece distributed by a GP in whose funds they're invested. Defined as such, even a smaller firm with ten full-time employees generates thousands of interactions in a given year.
Perceptions
Perceptions - I don't need to define the word 'perception' for you, but I do want to state what is perhaps obvious: Interactions influence perceptions. In the prior examples, was the investment professional collegial or dispassionate in the meeting with the seller? Did he or she appear warmly engaging or sharply analytical, and which was appropriate for that person?
The Year-in-Review piece - was it memorable, interesting and digestible? Or forgettable, dense, and generic? Whether live or not, each interaction has some emotional component. Investment management is, after all, primarily a business made up of people, and we are emotional animals.
Constituents
Constituents - today's private equity firm has a diverse set of constituents with whom it must interact, and whose perceptions of the firm will directly impact its ability to succeed. We have first-order audiences: limited partners, asset sellers, management teams, intermediaries, and prospective and current employees.
But there are also second-order audiences that may not be as front of mind. Imagine your firm is making an acquisition within a niche that is new for you within an industry you're already familiar with. This target company's competitors and customers and other stakeholders are all of a sudden relevant to your firm… And you to them.
Or what if a firm is looking at new sources of investor capital, such as the wealth management channel? Now you have a whole host of new constituents, each with their own framework for getting to know you.
Ecosystem
Ecosystem - no two private equity firms have identical ecosystems. The set of LPs, intermediaries, sellers, markets, and geographies that matter to you is unique. Your team works very hard to give you the best possible position within that ecosystem to the benefit of your investors and your firm's potential.
To restate that definition again, the brand of a private equity firm is the sum total of all interactions with and perceptions of that firm and its people and its presence by all the different constituents within that firm's ecosystem.
Brand Inertia and Change
I hope that at this point, I have essentially demonstrated that your firm's brand is composed of thousands of events and instances. This large quantity of instances means that your brand has a certain degree of inertia, and with so many people and impressions involved, it takes a lot of time and a lot of effort to move.
Three Common Scenarios
I want to give you three common scenarios to make this assertion more tangible.
Many private equity firms from the 90s and 2000s were full of hard-charging, aggressive executives and thus developed reputations for being tough or sharky. Distancing a firm from such a reputation is very difficult, it takes years to revise one's market perception, and even then, you need a new thing to be remembered for if there's anything negative to distance yourself from. Michael Milken needed to become quite the philanthropist in order no longer be primarily the insider trading guy from the 80s.
Here's the second – the amount of middle-market private equity firms that have repositioned over the past decade-plus from 'generalist' or 'industry-agnostic' to 'industry specialist' is vast – and anyone involved in those repositionings knows how glacial the pace can be. Often, one to three full fund cycles for the LP universe to truly absorb this redefinition.
A third hypothetical – say you're a New York-based firm with investment bank heritage having trouble appealing to middle-America founder-sellers. You can't very well turn over your entire investment team or move your headquarters to Des Moines, Iowa, in order to better appeal to those people.
And yet you do perhaps have highly relevant capital and strategic resources that can benefit them, the very founder-sellers whose built-in impression of you is negative because they're uncomfortable with what they perceive as the slickness and sophistication of Park Avenue. How do you overcome that seeming mismatch?
Within the sea of interactions and impressions and perceptions, I submit to you that your digital presence, your marketing materials, and your communications program are the lowest investment and highest impact means of ameliorating your firm's brand or moving its position from where it is today to where you want it to be.
Imagine your brand as a container of liquid, that liquid made up of the sea of interactions and impressions and perceptions we've been discussing. Just a few drops of something truly potent can dramatically change its color.
The Scale of Impact
I'm hoping that at this point, I've opened up the possibilities of the business impacts that branding activities can have. Now I want to talk about the potential scale of this impact.
You've made it this far into my spiel. I'm guessing you work at or are starting an investment management firm. I'm also guessing you have no idea what your firm's website traffic numbers look like or those of your peers.
Website Traffic Data
Here are the last 12 months' visitor counts for the top ten private equity firms from the PEI 300 list, total visits and then unique visitors. The second number takes out the repeat visitor numbers. Probably greater than you thought. Thoma Bravo, an outlier to the low side, still saw 250,000 individuals visit its site over the past year.
Now, you might say, "Well, we're middle market or lower middle market or we're newer, or we're in a different asset class, so those numbers aren't relevant." Fine. To make this a little bit more relevant, we looked at the bottom half of the PEI 300. We removed venture firms who tend to have heavier site traffic, as well as Asia-Pacific firms who have lower traffic numbers, and we ran the numbers. Total average visitors - over 75,000, and average uniques - over 50,000.
So this is a lot. It takes 0.05 seconds for a user to form an impression of a website. What type of impression are you generating through this valuable interaction between constituent and website? How would you grade that impression? That value is going to vary from firm to firm, but whatever it is, and for better or worse, it's getting replicated tens of thousands of times annually.
Investor Presentations
Let's look at another medium - the trusty investor presentation. Think about the number of eyeballs that that document gets over the course of a fundraise. It's not just the hundreds of meetings for which you're present in the room. For every representative that you meet from an institutional LP, there are one or two or ten of their colleagues whose first impression is not you, but your materials, as they are circulated among committees later.
How many people total interact with your book during the fundraise? With fundraise cycles lengthening over the last few years, probably more than they used to.
What's the value of a more persuasive and engaging document across 1,000 impressions? 3,000? 5,000?
A senior executive at a well-known investment consultant told me recently regarding her evaluation of incoming pitchbooks: "I just read the first few pages and see whether I want to know more."
Sounds kind of like the 0.05 seconds that your website has to land with a visitor.
Are you demonstrating differentiation with your book, or are you going into a pile of fungible alternatives?
Websites and investor presentations are just two relevant mediums to consider among many communications vehicles that can affect the way your firm's brand is perceived in its ecosystem. You can extend this theme across your entire communications program and its effect, or lack thereof, on each of your audiences.
But hopefully, within this context, they're good illustrations of the sheer quantity of impressions you make with a single branding and communications production.
Real-World Example
One last proof point, this one from my time leading Darien Group. One of our longest-tenured clients - a sector specialist sponsor with a strong ESG focus has been publishing lengthy, best-in-class sustainability reports for about seven years now, ahead of the industry curve.
Several years ago, that firm's head of investor relations told me that they'd secured a $50 million commitment to their fundraise that was, according to the committing LP, directly attributable to their sustainability report. It was gratifying for our firm to play a role in that document, and to hear that our work had had some contribution toward this business outcome. That's really a critical part of our mission.
Now, the rarity of this direct story underscores a critical point. 99% of the impressions made or reactions provoked by your brand and materials will never be explicitly mentioned or acknowledged. Whether those impressions are positive or negative, someone might tell you they like your new office. They'll never tell you they hate it.
I'd wager that over half the time, the audiences themselves are not even aware of being influenced by a firm's branding efforts. You have perhaps seen enough of the show Mad Men to appreciate the degree of clever, subconscious cues that inform the advertising campaigns that most influence consumers.
But the effect is real. This has been proven in B2C applications for decades, and more recently has been proven to be just as true in B2B purchase decisions.
And I want you to consider once more, if your website reaches 50,000 people per year. What value do you place on each of those impressions? Or what if a better messaged and crafted set of fund marketing materials could reduce your time in market by a month or two, allowing your firm to return focus from capital raising to core investment activities. What is the monetary value of that time?
The absolute dollar value will differ from firm to firm. If you came to this video hoping I would conclude that the value of a good private equity brand is $1.35 million... I'm sorry to disappoint you.
I sincerely hope that I have provided you with a framework to assess what brand value does, can, or should have for your firm and your efforts.
Conclusion
As we wrap up this discussion, I want to leave you with one further statement, branding and private equity is not simply about aesthetics or surface-level impressions. It's about creating lasting value for your firm and your stakeholders by creating lasting impressions throughout your ecosystem. This is what is called brand equity, a fitting term for our sector.
The stories you tell, how your firm presents itself when its people are not in the room, but its materials are, and the perceptions you cultivate can amplify your reach and your success. They matter. Quantifiably so.
In our next video, we'll look at how to build a great brand in private equity, most critically, how to achieve in your materials differentiation. The Holy Grail for most of our clients.
The Darien Group team and I hope that this video series and all our new content is helpful to you, our audience, our ecosystem. Until next time.
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