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Investing in friendships

Fortunes are made in recessions, so the saying goes. But they are cemented at the start of a recovery.

Fortunes are made in recessions, so the saying goes. But they are cemented at the start of a recovery. That’s now, most people agree, which means that now is the time to start creating the long-term relationships to ensure that you make the most of the good years that are on the horizon.

There’s certainly space for new relationships, because some old ones are still fragmenting. Many investors are still suspicious of banks and increasingly that suspicion is reciprocated. As anti-bribery and corruption regulations multiply, many banks are shedding wealthy customers who they feel they don’t know enough about.

Incidentally, the word in London is that some Swiss banks are proving less squeamish and are making serious efforts to hoover up the clients the British have offloaded. Whether these clients feel they can build long-term relationships with the Swiss, whose secrecy laws are still in flux, remains to be seen.

An area that is ripe for creating new relationships is private equity. We are at an interesting point in the cycle, where lots of talented people have left big private equity firms to set up their own firms, either because those firms are shedding staff to cut costs, or just because entrepreneurial staffsee opportunities.

These teams are often fundless general partners (GPs) – skilled operational teams without money to back them. It’s worth pointing out that not all fundless GPs are equal. Some have a bad track record and have simply failed to raise funds. Others are zombies – GPs that have lost their funds. The most appealing ones are groups of people who have spun-off from a bigger firm, especially if they have left with the parent firm’s blessing.

“If you have spun off because you think you have what it takes to raise a fund, or are coming from outside the industry, that is interesting. They can be the future star teams,” says the head of a large family office who is a fan of fundless GPs. “Some of the mega-cap funds have not been able to raise the funds they wanted, so you are seeing some senior, high-quality partners spinning off.”

Family offices’ problem with private equity is often finding good quality deals to invest in. GPs have the opposite problem – they often have deals, but no money. As economies sputter into life, we could see the start of some beautiful new friendships. 

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