Regular readers of Real Deals´ Vulture might recall a recent edition unveiling how a GP´s name was born. An amusing anecdote, it does pose the Shakespearean question of: ‘What's in a [private equity firm´s] name?’
For FrenchFood Capital, based in Paris, it seems to be an investment strategy. While Roark Capital, hailing from Atlanta, Georgia, is paying homage to the philosopher who inspired their investment strategy (for the uninitiated, the name Roark is a reference to the main character in Ayn Rand's book The Fountainhead). Verdane recently renamed its Capital XI fund to Verdane Freya XI to, among other reasons, “pay tribute to Verdane´s Nordic roots with fund names originating in Norse mythology”.
Whatever their underlying considerations may be, names are important. So important, in fact, that GPs legally protect them. In the UK, the first trademark application containing the term ‘private equity’ was filed in 2006 by Summit Partners.
In the tight fundraising environment GPs are currently navigating, firm names have become even more crucial. A recent survey carried out by public relations firm Prosek Partners found that 88% of responding GPs think marketing and branding is more important in a tough fundraising environment.
One possibility to improve your chances is trademarking not just the firm but also your fund`s name, as Sophie Peat, partner at law firm Ogier, suggests. The essential function of a trademark is a badge of origin to denote the quality of services provided.
Whatever extent of protection firms choose, the right name is a complex question. “When creating a brand, the name of a private equity firm is not something managers start out with – it´s the individuals,” shares Andrea Valdivia Eyzaguirre, IR and MarComs professional at HPE Growth. “As the firm becomes more successful, its strategy will increasingly tie in with its identity. Over time, it is therefore important to create a powerful idea that transcends the team, as it will then turn into the firm's name.”
Operational leaders who manage a variety of people and oversee multiple departments are no strangers to the challenge of binding these different lines together into a single, tight rope. But if we zoom out and look at the firm as a whole, the picture becomes even more complicated. “Private equity firms can feel a duality over their communication,” says Danai Musandu, VP for IR at HPE Growth. “To your investors, you need to highlight your differentiator; to your entrepreneurs, the value add. You walk a fine line between stable, corporate communication and remaining approachable.”
‘Der Name ist Programm’
To paraphrase this German idiom, which translates roughly to ‘the name says it all’, or ‘its name reflects its programme’, more and more private equity firms, particularly on the impact end of the strategic spectrum, are using ESG nomenclature for their funds.
As Phil Bartram, a partner in Travers Smith’s financial services and markets practice, observes: “We are seeing more private market funds with ESG terminology in their names go to fundraise. Where an existing strategy can be made to stand out from competitors by including an ESG feature in the name of the next fund vintage – and this is credible – sponsors will look to do it. Investors do put store in a fund name, in my experience."
But picking a name aligned with ESG is a tricky proposition. Broadly, they can be divided into three categories. Firstly, names with a clear alignment with the Paris Agreement or European Union taxonomy. Such titles will carry implications and create expectations for the fund’s investment strategy and possibly carry additional litigation risks, depending on the details of the strategy.
Then there is a cohort of names in the middle where fund names include terms such as ‘global impact’ and ‘empowerment’, which denote a general dedication but are broad enough to cover many different roads the fund could go down. Finally, the third group makes references to industries, which could carry problematic implications. For example, a fund may have ‘forestry’ in the title, which at first glance gives off an image of sustainability. But it is dependent on what happens in practice in a forestry-driven fund’s investments that decides how sustainable the vehicle is.
Amid concerns of greenwashing and hushing, ESG terms should be used with caution. Says Bartram: “Firms need to be careful. For one, because the European regulator is looking to restrict the use of certain terms. For two, because while they may currently help to stand out among competitors, some important LPs will continue to walk up their demands for ESG alignment, especially if the fund has an ambitious name."
While initially a discussion around names may sound like semantics, between the complex environment private equity operates in and the pitfalls of jumping on trends, it is an issue that warrants more thought. Even more so, as private equity is in it for the long haul.
During the lifespan of a fund and its investments, the world around them changes, undergoing generational and semantic shifts. This affects both the entrepreneurs private equity backs and the institutions whose capital it deploys. “It’s important to keep in mind that while they’re called ‘institutional investors’, you are dealing with people on the other end,” says Musandu. “Generational shifts across the industry are also taking place at their end. What spoke to the same LP 10 years ago, might not now.”
Whatever underlying motivations, be they descriptive, philosophical or denominative of an origin, firm representation needs to be flexible enough to appear contemporary while simultaneously communicating stability. The challenges in the question ‘what is in a [private equity firm’s] name?’ come from the changes in people on all three parts of the spectrum, from the entrepreneurs they back, over the staff of the firm, to the LPs on the other end. And as the landscape around them changes, be it through the macroeconomic environment or regulatory amendments such as ESG, the quest for a firm identity, one that transcends its original progenitors, is one to be considered with care.