Dec 17, 2024
"Every successful company? It’s really about the people and the management team. And every unsuccessful company? It’s about the people and the management team. That just gets proven over and over again, regardless of the size of the business, regardless of the size of the private equity fund. It's always about the management team."
This week, Michelle McKinnon, Senior Portfolio Manager, Alternative Investments at Loews Corporation, joins Electrifying Growth to discuss the strategic role of limited partners, including insights on relationship-building, assessing fund managers, and the power of industry experience in growth equity.
The Strategic Role of Limited Partners in Growth Equity Investments
In private equity, limited partners (LPs) often play a quiet but pivotal role in driving growth. In my recent conversation with Michelle, we explored the value LPs bring beyond capital. Michelle’s background—from investment banking to operational roles and then to portfolio management—gives her unique insights into how LPs can strategically support their general partners (GPs) and portfolio companies. Here are some key takeaways from our discussion.
Evaluating Fund Managers: Beyond the Numbers
For LPs, choosing the right fund managers isn’t just about looking at past returns. Michelle pointed out that while numbers are helpful, the people driving the investments make the real difference. "Every successful company is really about the people," she said, underscoring how a strong management team and a well-matched fund manager can be the key to a winning investment.
As an LP, Michelle values transparency and integrity in fund managers, especially given the “blind pool” nature of private equity, where capital is committed before investments are selected. She emphasized a “gut instinct” developed over years of working with various managers. LPs rely on fund managers to make wise decisions but also look for clear communication and a willingness to address tough questions.
Partnering with Your People
Michelle shared that she values three core qualities in fund managers: honesty, transparency, and a strong sense of teamwork. She explained that fund managers who are upfront about challenges, potential red flags, and portfolio performance create lasting trust with LPs. For LPs, it’s not just about finding someone who can deliver returns; it’s about partnering with people who are open about how they make decisions every step of the way.
Building Strong LP-GP Relationships for Long-Term Success
The relationship between LPs and GPs in growth equity goes well beyond the first investment. Michelle made a great point about the LP’s job: to back portfolio companies without stepping on toes. That takes a solid base of trust, open communication with the GP, and being on the same page about critical goals. She emphasized that no two LP-GP partnerships are the same—each GP has a unique style, whether it’s a hands-on approach with value-creation platforms or a more laid-back strategy that gives CEOs room to lead.
Loews Corporation’s investment style leans toward GPs who have experience weathering market cycles and bring a clear, strategic vision for growth. These GPs have shown they can genuinely support their portfolio companies and adjust their strategies as markets change.
“It’s the relationships that last through the ups and downs that create value,” Michelle says, highlighting how long-standing GP-LP partnerships help build stability, even in tough economic times.
The Value of an Effective Partnership Model
While value-creation platforms have become standard across private equity, LPs like Michelle recognize the difference between slide-deck promises and actual value-add strategies. An effective LP-GP partnership involves practical support, whether through shared networks, strategic input, or industry insights. Michelle advised that LPs and GPs should assess whether a fund’s operational approach aligns with the specific needs of their portfolio companies. For example, early-stage companies may benefit from more hands-on support, while larger, established businesses might need less guidance.
Applying Diverse Industry Experience to Investment Decisions
Michelle’s extensive experience across sectors—from media and tech at SiriusXM to global industrials at Honeywell—has shaped her perspective as an LP. She explained that understanding different industries allows her to make more informed decisions about fund managers and investments, considering each sector’s unique challenges and growth trajectories.
Michelle’s experience working with Honeywell’s pension fund gave her a unique perspective on the insurance industry’s commitment to risk management and long-term value. That focus now shapes her investment choices at Loews. She also gained a firsthand understanding of how a company’s culture can drive performance—an insight she brings to her evaluations of fund managers and portfolio companies. She explains, “A company’s culture and leadership approach can often be more important than its financial metrics.”
Why Industry Perspective Matters
Industry-specific knowledge gives LPs like Michelle a sharper lens to evaluate a portfolio company’s growth potential and resilience. This diverse experience means LPs can work closely with GPs, bringing in insights that are especially useful when looking at new industries or emerging markets. LPs with a broad view can offer real support to portfolio companies dealing with unique challenges, making these partnerships a strong foundation for long-term success.
Key Takeaways for Investors and Founders
- People First in Fund Selection
“Every successful company is really about the people,”
Michelle has a strong, people-first approach to investment decision-making. For LPs and GPs alike, building trust, prioritizing transparency, and fostering teamwork are the foundations for lasting, successful partnerships.
- The Power of Relationship-Driven Growth
In private equity, LP-GP relationships are essential to growth. What do these relationships entail? Effective communication and strategic alignment. Michelle called out that an LP’s role is to support rather than interfere, giving GPs the space to drive growth while ensuring that mutual goals stay aligned.
- The Advantage of Industry Experience
With a career spanning multiple sectors, Michelle brings a unique perspective. LPs with industry experience can provide a kind of advisory that can’t be found anywhere. With their hard-won wisdom, seasoned LPs bring insights beyond the numbers, helping companies stay resilient through market shifts and unforeseen challenges.
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