- November 10, 2015
- Posted by: Vincent Sarullo
- Category: Fund of Funds, Hedge Funds, Management, New Funds, Private Equity / Venture Capital, Raising Capital, Real Estate, Tax Liens
Tower Fund Services was a sponsor of the Alternative Asset Summit on October 27th – 30th 2015 at the Wynn, Las Vegas. Our Co-founder, Vincent Sarullo moderated a great panel: “Emerging Managers: Strategy Overviews and Thoughts On Launch to 100 Million” with a terrific panel consisting of Breanne Eshelman from PAAMCO, Ari Glass from Booth Bay Capital and Sidney Hardee of Hardy Brothers.
The event brought together approximately 500 Investors, Managers, and Service Providers. Here is a breakout the attendees:
Here are some key takeaways that were echoed from Vince’s panel and others throughout the event:
- The most important question managers can ask themselves, before pitching their fund, is “What is this investor’s goal and can I help them?” Investors can deploy capital for a variety of reasons; income, capital appreciation, capital preservation, risk mitigation, inflation protection, to name some. Does your strategy fit their objectives?
- When someone says that they will do cap intro for you, get at least 3 references from them that they raised money for. Your time is valuable and meetings take up time. This needs to be considered when entering into a relationship, never mind the disappointment factor.
- Mangers need to get their hands dirty. Most capital comes from friends and family. Focus your efforts on networking with your current investors to get them to introduce you to their friends and family.
- Fee pressure news is generated by ICI which is driven by the Fidelities of the world who can’t charge fees. Fees should be earned and you need to justify to your investors that you need the funds to have an organization that makes it all work for the strategy which makes them money. Once those fees are set, there should be little wiggle room on negotiating lower fees for investors. Those who drop fees or have hurdles to incent investors create a self-prophecy of failure; managers need “to keep the lights on”. An exception to fee waivers would be a larger institutional investor which would allow the fund to grow materially in AUM. In this case, many leading panelists felt that it makes sense to reduce or waive fees. The larger AUM would make marketing the fund easier, provide capital to make larger investments, and allow the fund to absorb fund expenses (other than manager fees) with less impact to each LP.
- Emerging managers are attractive for seed investors and family offices given that they have the proper infrastructure and business plan in place. These investors see an emerging manager as a highly motivated entrepreneur who can make nimble decisions. These managers can make investments which may not be possible or not as impactful for large funds.
- Seed investors may be willing to pay full or even higher fees, in order to help the manager pay the bills and earn a living. In return they may ask for an ownership stake in the management and/or GP company. This arrangement, can be mutually beneficial if undertaken with proper forethought and communication between the parties.
- Over the past 5 years there has been a shift from asset management to asset gathering. There is opportunity for emerging managers to capture new capital from existing asset gatherers seeking better management.
- Managers cannot be everything to everybody. Determine your niche, focus your efforts to maximize returns within it, and target your marketing to those who it benefits.
- Eighty to 90% of the work that your service providers are doing for you is the same as all the other service providers in that field. The differentiator is what they do for the other 10%-20%. Most importantly, are they with you through all the times, good and bad?
- Even if an emerging managers is small, it is critical for them to operate as if they would when managing a much larger AUM. It may not be economical to implement everything on day 1 of the fund, however, there needs to be a written plan in place and frequently updated as the business evolves.
We hope that some of these points help our readers and would love to discuss any questions or comments with you. The Summit was a great success once again and we hope to see you in Vegas next year.
Written by Vincent M. Sarullo & Kinjal A. Amin, co-founders of Tower Fund Services.