How much thematic work / industry research do you guys do?
At a newish fund currently that is industry agnostic supposedly - was wondering what is the "typical" thematic or industry research process look like elsewhere?
When you receive a CIM for a potentially interesting business but not in an industry the firm has invested in before, what sort of work goes into becoming an "industry expert"? Is it simply banker calls, reading the market study (if provided), desktop research, equity research, maybe expert calls? Some of the areas can be quite niche, so there isn't much out there, but it seems like our principals want us to know everything before committing more time and resources to a process.
On the other hand, do your firms do proactive thematic research to figure out key areas you want to keep your eyes on? Could be a months long or year long dedicated process to truly develop industry knowledge? What does that look like?
Struggling with a frame of reference here since the principals were not at traditional sponsors before this.
Based on the insights from Wall Street Oasis, the process of thematic work and industry research varies across different funds, especially when dealing with industry-agnostic approaches. Here’s a breakdown of typical processes and strategies:
Initial Research: When a Confidential Information Memorandum (CIM) arrives for a business in an unfamiliar industry, initial steps often include desktop research to understand basic industry dynamics, key players, and market size. This is supplemented by reading available market studies and equity research reports.
Expert Consultations: Engaging with industry experts through consultant calls or interviews is common. These experts provide deeper insights into niche areas, competitive dynamics, and potential growth opportunities that might not be evident from public sources.
Banker and Analyst Interactions: Conversations with investment bankers and analysts who cover the sector can offer valuable perspectives on the industry’s financial and operational benchmarks, as well as on the specific company in question.
Proactive Thematic Research: Many firms conduct ongoing thematic research to identify promising sectors. This involves:
Integration into Investment Strategy: The insights gained from thematic research are often integrated into the broader investment strategy, helping to identify potential investment opportunities before they become mainstream.
Continuous Learning and Adaptation: Given the dynamic nature of markets, continuous learning and adaptation are crucial. Regular updates and revisits to the thematic research are necessary to stay ahead in a competitive environment.
In your case, where the fund is relatively new and the principals are not from traditional sponsors, it might be beneficial to establish a structured process for thematic and industry research. This could involve setting up dedicated teams for research, subscribing to specialized industry reports, and regularly engaging with external experts to fill knowledge gaps. This structured approach will not only enhance the understanding of unfamiliar industries but also aid in making informed investment decisions.
Sources: PE professional, what's your process while judging an investment?, PE professional, what's your process while judging an investment?, Q&A: Equity Analyst at a Sovereign Wealth/Pension Fund, Stock Pitch Sample Template - Proven Examples to Help Ace Your Interview, Idea Generation... and Why Wall Street Sucks at It
I would start looking at case studies of successful deals that have made incredible returns.
What made it successful, what made the industry attractive, what was misunderstood then broaden out from that to look at where that could be replicated. Find out what sectors to prioritize based on what you learn here
Don’t be a sector specialist simply because you picked randomly, or worse some banker broker picked for you.
Good point- Where would you find these case studies?
Start with a list of firms or investors you respect then figure out a few of their marquee investments
Some will have write ups, some will be covered in their autobiographies, get off the couch and do some research
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