Directors presiding over alternative funds that have not been performing for long periods typically claim that the challenge at their stable is investors are not willing to provide sufficient long-term equity to replenish the capital base. Investors typically do not miss the blind spots of a plan that would be ineffective to drive long-term growth. The key challenge with securing a mandate for long-term success is the issue of credibility. Directors that have track record of providing strong returns for shareholders, do not spend too much time in roadshows to convince shareholders of their long-term plans.
In private equity, the long-term performance of managing partners is driven by track record, strong returns, superior asset placement in the portfolio and the ability to exit at the end of the investment cycle. The process of picking the right private equity team is seldom based on these key attributes in the beginning, but as the managing partners operate their funds, it becomes apparent which funds are performing at a level that attracts long-term investors. The funds that are non-performing will eventually complain about the short-term mindset of their limited partner network, when in reality, this is the phenomenon of the natural sanity of investor capital.