We catch up with the host of our Palico Capital Calls podcast Claire Commons, COO and Head of Strategy at Palico. Claire worked for over 20 years in private equity having worked on behalf of pensions, endowments and families. Now as a leader in the PE tech space, she tells us about the trends we are seeing across the InvestTech space and the rapid changes these trends are bringing to the PE industry as a whole in a conversation with our Head of Marketing, Christopher Jeffery.
Christopher Jeffery (CJ): “Claire, it is good to hear from you again, this time in the position of the guest speaker. After having hosted about seventeen podcasts in the past year, can you start by sharing with us what you’ve thought of this overall experience?
Claire Woolston Commons (CWC): As you said, this was a thing we tried last year. At Palico, we are the go-to community for many of our members. And so we’re a natural marketplace, not just for investment opportunities that everybody knows Palico about, but also a place to share new ideas. This idea of creating a podcast that highlights leading voices in private markets was in some ways a natural growth for us. We’ve interviewed people around the globe, literally from Singapore to Israel, and talked about investment strategies from venture to real estate to secondaries. And also importantly talked with several different stakeholders from LPs to GPs, to advisors, and important organizations like ILPA. And running the gamut from global major investment firms like Brookfield and smaller and more nimble, creative endowments like the Carnegie Endowment for Science. We hadn’t done this before, but as you know very well at Palico, we love trying new things and we’ve heard from some amazing investors who’ve shared really interesting ideas. We also know it’s valuable to a lot of our listeners. We get thousands of downloads and hear from listeners all the time that they find a lot of value in it.
So this is emblematic of what we do at Palico. We’re looking to be the platform and the marketplace to share authentic ideas and new ways of investing. And we’re always looking for new guests. So we feel like this is Chapter One and hope to have many more chapters.
CJ: Absolutely. And I think something so interesting for us was just to see over time how people began to engage more and more with this podcast. So it’s been a lot of fun to see that happen.
CWC: And for me, this has been super fun, selfishly, because I’ve been an LP for two decades and I’m naturally a curious person. I love learning from people. So it’s been extra fun for me to get to speak to so many different top quality investors.
CJ: It was April last year when we had this first chat. COVID was happening. There was a lot of uncertainty and we were talking specifically about secondaries, but things have changed a bit, especially at Palico since then.
CWC: Of course COVID has changed all of our lives. And when I think back to our conversation in April 2020, we were literally in a different place for thinking about flattening the curve in two weeks. And I think, reflecting on what’s changed a lot, I think we’ve all figured out ways to focus on positives. And it’s forced all of us to be more open and creative about the way that we live and the way that we work. I’d like to think that this has caused behavior to change for the good, and it’s this idea of not being a cyclical change, but more of a secular change. And that is where the exciting story with Palico fits in because, Palico has benefited enormously from people connecting and engaging and investing through new channels, tech channels. And so we’re thrilled to be yet another tool in the investor’s toolbox that allows individuals to engage better.
CJ: Going from that, you’ve been an LP or advisor for 20 years. you’re a veteran of the industry. You joined this up-and-coming startup disrupting the industry, but what I would love to talk about is investor relations and what it’s been like over the last 20 years. Maybe even talking about what you saw and how that brought you Palico.
CWC: The investor relations function is something really important to talk about. And it’s something that has evolved. Private equity is a huge and growing business. It’s anywhere between seven and fourteen trillion dollars, depending on whether you’re including real estate and real assets and some other pieces within private markets. And the investor relations function has grown along as private equity has become more institutionalized. I think the first place to start is what is the investor relations function? It’s one of the most critical functions between the fund and the investors. And in this position, the investor relations team wears an enormous number of hats. They lead fundraising – so they engage with prospective investors and help the firm tell their story to prospective investors. They lead the charge when it comes to ongoing portfolio review and monitoring with investors. They also manage the care of many other very important functions like secondaries. When an LP is looking to potentially divest a fund position, they call the investor relations team. That’s their main contact with the firm and they generally start the process that way. So the investor relations team is often the leading voice when it comes to dealing with LP transfers. And then finally, there is a huge explosion of co-investment opportunities. Most private equity firms are now thinking about the different co-investment opportunities they can offer for investors. And it’s investor relations that are managing, disseminating that information, and connecting with investors on our investments. So basically it’s grown enormously in importance and impact.
CJ: So clearly, a pivotal role or for private equity funds, but one of the things that we talk about a lot is the evolution of their importance. But in terms of how they get their job done, we talked a lot about how the technology within that role hasn’t really changed.
CWC: Absolutely. I think most private equity firms are asking themselves an important question, which is: what are the right tech tools? What’s the tech stack that I need to continue to grow and to remain competitive in the future? And as you said, the private equity industry has historically been underserved by tech. This is the exciting part of the story where this growing important role of investor relations intersects with Palico’s story and the value that Palico brings to both the GP and the LP.
CJ: Speaking of the LP, we haven’t talked about them, but they are just as important on this two-sided marketplace between GPs and LPs. I would love, especially from your point of view of someone that was an LP for a long time to get your perspective on what’s special about what is happening for LPs and the use of tech within that.
CWC: This idea of GPs and LPs connecting and engaging is nothing new. But the methods and the tools, as you said, have not been optimal. And the industry has been underserved by tech and the dynamic is: it’s the GP that chases the LPs. It’s very much of a push strategy, which is at worst kind of annoying and at best, just a waste of everybody’s time. And also using old ineffective tools like PowerPoint. This is actually how I got excited about Palico because as I said, I’ve been doing this job of being an LP for 20 years. There’s this riddle that is hard to solve. As an LP, whether you’re at a big pension fund or small endowment, realistically, you’re only gonna invest in ten funds tops per year. So that’s the end of the funnel. But the top of the funnel is to do your job, you have to be able to know the entire market. And so how do you solve that riddle of knowing the entire market, but then getting quickly and efficiently access to those ten spots you’re going to fill. So we’re helping IR teams and LPs do their jobs in an innovative, tech-forward, and compliance-friendly way. At Palico, I’d say the most important thing to remember is we’re doing this connection engagement that is radically different because the LPs are the ones connecting to the GP. So the LP is the one in the driver’s seat, the one in control, and the one that selects the GP basically on stage, saying: “I want to talk to you”. And this is very different from whether you use an advisor or database for the GPs calling and emailing LPs… they don’t know who is interested. At Palico, the GPs are only going to be talking with LPs who’ve already indicated that they are interested. They’ve already said ‘I would like to speak with you’. Everybody wins in this game because there’s less time wasted on dead leads for everybody. The idea is to have a refreshing, unique channel with a super integrated tech interface where you can take your job as an LP: you need to get to a first meeting; you need to decide which firms you want to have a call with… And you can efficiently do that through our tech platform. And by the way, have access to super engaging video and audio content which helps the LP learn the story and the GP tell the story of their unique investment strategy in a great way. The final thing that is super important, is the compliance aspect. At Palico, we have designed the entire platform to be compliant. We only allow accredited investors. We have developed a compliance team. So the LPs and GPs are safe in the knowledge that they are engaging in a compliant and professional manner. That last piece is something that gets overlooked, but it’s something that in this day and age… it’s so important to know that you’re the one in control and that if you’re the GP you’re controlling what you’re sharing with the LP and the LP knows that they’re only speaking with professional investors.
CJ: I can certainly attest to the number of man-hours, including many of yours, Claire, that go into the regulatory compliance as we are pushing the envelope in a new way, but always doing it with compliance in mind, both for our LPs and GPs on the platform.
CWC: I think this is exciting too because the analogy that I like to think about in the real world is 20 years ago we would call each other on the phone. And then we had email and email gets a little fatiguing. And, the past five years we have had texting, and messaging components that have developed. And everybody has figured out that texting, whether it’s on WhatsApp or another platform still doesn’t replace a phone call and it doesn’t replace an email. It’s a very important additional communication engagement tool. And similarly, at Palico, we’re not looking to replace in-person meetings. We’re not looking to replace the traditional methods of connecting. We are another way for engaging. And I’d like to give an example: we have a GP that is listing a fund on the platform and recently received a commitment from an LP and a member of Palico. And the funny thing is that they knew each other in the real world, but they were not aware of one or the other, that one, the LP was interested in investing in that specific strategy, and two the LP, wasn’t aware that the GP was raising money. And so I think that’s a really important analogy with the many tools of communication. Palico has become and is continuing to become a critical engagement and discovery tool for both LPs and GPS that supplements and compliments all the tools they already have.
CJ: Definitely, that’s a point that’s super interesting and exciting for us here. Content is king, not only for Netflix and other streaming platforms but also for us where we work with these amazing PE funds so that they can quickly and consistently update information relating to their fund news, but in an environment that is regulated and where the LP takes the initiative to seek that up. And of course, I love that story. The GP and LP that actually knew each other. And then we reconnected as a result of the platform.
CWC: And we continue to innovate. A very huge part of what we do is listening to our customers. And we created an entire client experience team, to be thought-partners with our GPs. These investor relations teams that we work with are some of the smartest and most innovative people in the industry. And we have learned a lot from them and continue to innovate and make our product better every single day. It’s funny, I was reading a biography about the guy who started the Ritz hotels, Cesar Ritz, and everybody knows the name Ritz. He was born the son of a Swiss farmer and they’d never left. And he grew this incredible empire of sophisticated hotels, partly by being so attuned to his customer’s wishes and demands that he could even anticipate what the customers wanted before they did. And there’s a story about the opening of the Ritz hotel here in Paris. He sat down the day before it was opening and sat down at one of the restaurant tables and said ‘no, no, this is not right. The table is one centimeter too tall.’ and indeed he was correct. And he sent them all back. I’m not saying we’re as good as Cesar Ritz at anticipating our GP clients’ needs. It is a critical part of what we do and it’s such an honor and so exciting to be able to work with such sophisticated partners, because it helps add to our product and help us continue to innovate every day.
CJ: Along those lines of innovation in what we affectionately call, InvestTech. Now there are some other interesting players as well that we’ve been talking to, and that are interesting as the industry evolves.
CWC: Yes, I think this is a funny dynamic where the private markets industry in general, specifically venture, but later stage growth as well has been investing in innovative companies across many industries. But the irony or the opportunity, depending on your mindset is that private markets are still very underserved by tech. And that’s where there’s a lot of really exciting innovation. As you said in this world called InvestTech, which is pretty specialized but also a huge market, is there’s a lot of very interesting solutions looking to help this industry with basic retooling. And as I said before, hoping these private markets players think of what their tech stack needs to be. Whether you’re talking about KYC solutions, data rooms, marketplaces, how to communicate different channels like chatting and distributing content… These are all areas that 20 years ago, there wasn’t a solution and that’s why Palico does all those things. And you’re right to say that we’re not alone. We’re not the only firm doing this. There are several players doing things up and down the value chain. And we’ve been in partnership talks with many players that are working on other pieces like some of the diligence reports, some of the analytics when it comes to valuing secondary opportunities… And also some players are taking some of the headache and pain out of some of the more administrative parts of the process, like managing subscription documents. There’s a lot of really exciting innovation within our industry.
CJ: Especially you Claire, you do a lot of the partnerships. You’re talking to many of the companies that are innovating in the industry. So I can’t think of anyone better to talk about the future: where is this all going in terms of private equity, InvestTech, Palico… Especially now that the world is changing as well. So, tell us where do you see all this going? What’s the vision?
CWC: I am an optimistic person, but I’m not sure about the world coming out of COVID anytime soon. It’s this idea that COVID has been an opportunity in a dress rehearsal, if you will, for some of the bigger challenges that we’re going to be tackling. Let’s talk about the end of the world stuff like climate change. And so I believe very strongly in the power of innovation and also what people can do when they’re forced to do it and when they’re bored. Because I think this past year, a lot of us have had a lot of time on our hands. It reminds me of the story of when Albert Einstein was asked how he came up with the theory of relativity. He said ‘I was bored.’ So I’ve been very optimistic about what people can do when they’re faced with both challenges and also time on their hands, which in some ways has been really what this past year has been with this piece of lots of challenge and stress, but a lot of dead time.
And so I think that all the tools we’ve discovered in this past year will put us in a better position to tackle some of our biggest generational challenges. And I do believe that specific to our industry, Tech will become the center of investor behavior in private markets.”