- June 8, 2017
- Posted by: Vincent Sarullo
- Category: Events, Fund Administration, Hedge Funds, Raising Capital
Hedge Fund Strategies for Capital Raising
Experts reveal these top hedge fund strategies for capital raising at the NYC Alternative Investments Summit.
What are the top hedge fund strategies for capital raising? According to experts at the 2017 NYC Alternative Investments Summit, several tried and true strategies rule throughout the capital raising process.
1 – It’s all about building relationships and trust.
There is no substitute for a warm introduction over a database. Your first approach might be to common friends and colleagues who have an existing relationship with you.
Registering with databases is good for making information available for prospects to cross reference information, but they don’t source investors.
Platforms like hedgeconnection.com can be a useful resource for connecting with investors.
“Everything is about relationships,” Michael Harris, Caerus Investors
Don’t overlook conferences and other in-person events. Then when introductions are made, investors want to trust their fund managers and this relationship.
How else can managers build trust? According to Vincent Sarullo, Co-Founder, Tower Fund Services:
- Have respected service providers that support your infrastructure and security
- Maintain open communication and transparency with your current clients and be responsive to their inquiries and needs
- Deliver what you promise
“Initial investors put money with you because they know you. The type of person you are, not the numbers. Why should that be any different with other investors; they want to know who you are and how you think,” Vincent Sarullo
While opportunities and relationships might be finite, investors want to feel confident with forming a long-term relationship with hedge fund managers. Be comfortable with building a relationship and earning their trust.
“Find the right people to build relationships with, “ Holly Singer, HS Marketing
2 –Be prepared for investor due diligence.
Investors will investigate a wide variety of channels before choosing to invest with you.
“Investors will do both qualitative and quantitative research,” Sherry Pryor Witter, Witter Assets
They may require:
- background checks
- reference checks
- private investigations
Managers need to find the right investor who will fit with them.
Managers may launch a fund without enough reality of the true potential. They should be prepared for grounds for pause by investors.
3 – “Data Dump” is not the best strategy for approaching a relationship.
Rather than starting your story with performance details, allocators recommend the following approach:
- Who are you? (Your pedigree, your team)
- What do you do? (What’s your strategy?)
- What’s your edge? (What makes you the choice among competitors in the same space?)
A manager may want to start a conversation with a potential investor / allocator by asking what their investment needs are and tailoring their response to that answer.
Investors assume you have good performance when you make your first introduction. They want to hear about your background. Performance information can be shared as the relationship progresses.
4 – Investors are overwhelmed with requests.
“Keep in mind the allocators you are targeting are getting thousands of reach outs,” Eric Hoerdemann, Chief of Research & Risk, Stride Capital Group
Lisa Vioni, CEO of Hedge Connection pointed out how the money raising process is ultimately a numbers game. For example, she explained that when she was Managing Director of a multi billion dollar hedge fund, even though she met with hundreds of potential investors, the majority of the money raised came from four key allocations.
Managers need to develop a strategy for differentiating themselves.
5 – Differentiate yourself by becoming a thought leader.
“Educate your investors to make them smarter about what you’re working with,” Lisa Vioni, CEO and Co-Founder, Hedge Connection
How can you differentiate yourself when investors are overwhelmed with requests?
“One strategy is to become an opinion leader in whatever space you are in,” Holly Singer, HS Marketing
Fund Managers need to be aware of the JOBS Act and its requirements when promoting their fund. But one acceptable method for differentiating yourself is to focus on thought leadership without fund specific or product specific details.
“Leverage your expertise in your space,” Holly Singer, HS Marketing
When investors ask “who really knows this space,” be someone that they can reach.
“Get attention above the noise,” Eric Hoerdemann, Chief of Research & Risk, Stride Capital Group
6 – Emerging managers have a good shot at acquiring investors.
“Our managers are our partners. Our strategies are very niche. The opportunities are finite,” Sherry Pryor Witter, Witter Assets
Some big hedge funds are not delivering returns as they once did. Investors are eager to hear from emerging managers who may have more finite strategies.
7 – Be consistent about your messaging.
Whether hiring third-party marketing firm or not, managers must be careful and consistent about messaging.
Have a succinct message. Develop an elevator pitch for everyone in your organization to memorize. Make sure third-party marketers are consistent with this message. Be consistent on all communications platforms with your message.
8 – Have these marketing items prepared.
- A 1-2 page tear sheet. Include qualitative and quantitative information
- A slide deck – stop at 20 slides. Any more is unnecessary
- Business Cards
- Additional marketing items like websites are dependent on the fund strategy
- It is recommended to have an email address for your firm from the start. It looks far more professional than addresses to @yahoo or @gmail.
9 – Have a riskier strategy along with a conservative one.
Have a conservative and riskier strategy when approaching investors. Sherry Pryor Witter, Witter Assets, wants to hear about conservative options and the more riskier strategies that managers might be using for their own investments.
Investors are open also to learning about “juiced-up portfolios.”
Some investors are looking for finite opportunities with shorter-term relationships that tap into finite trends to produce higher gains.
“Opportunities only last for so long,” Sherry Pryor Witter, Witter Assets.
10 – Know your environment.
Understanding your environment is vital to capital raising. For example, active management is back in vogue, according to panelists.
Stay apprised of trends in the industry before approaching investors.
The Alternative Investments Summit was held June 7, 2017 at the Terrace Club in New York City. Sponsors included Tower Fund Services, Richey May & Co., Riveles Wahab LLP, M.S. Howells & Co., Midland, and Hedge Connection.