The Secret to Asset Growth 2013
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The Secret to Asset Growth 2013

By Rachel Minard, Minard Capital

 

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Since 2012, the CHFA has been conducting Thought Leadership Roundtable Dinners designed to chronicle current issues of interest to the hedge fund community. On May 6th in Las Vegas, NV, CHFA held one such dinner to discuss strategies to help fund managers secure new assets. The following is a summary of the highlights of that discussion.

The New Ground Rules

The current global institutional and private client industry has never been more of a paradox for the alternative investment manager looking to grow their business: justifiably fickle partners all of them. Here are the new ground rules to the game.

Investors want the stability and long-track record an established manager can provide, yet want the innovation and “edge” tied to often-undiscovered managers. They want the comfort of a manager’s stable infrastructure, operational and compliance heft and well-known service providers; yet, they also want to find managers who can cut costs to deliver a higher ROI to their investors which may include outsourcing these very components of the manager’s business. They want the perceived exclusivity that comes with a capacity-constrained fund yet don’t want to be too big in a commingled fund (2008 taught us the need to scrutinize the fellow investors with whom we’re co-invested). And while size seems to hold all the cards and headlines, investors see the blast emails, large firm turnover and salutation-less emails as signs of having become “just another client.”

Today’s investors seek non-correlated yield, which all agree is challenging to find (especially consistently) and yet require the manager mitigate the risks associated with their investment with the universal applause of “absolute return”. They want diversification but not over-diversification for fear of crowded trades and exploited arbitrages. They want concentration but not if that means concentration risk tied to longer-locked vehicles where the tactical advantages of redemption or trimming a position are not offered. The investor wants liquidity — the power and control that comes with knowing they’re able to touch their capital should and when they want to — yet know most alpha streams are best served by longer-locks to capitalize on long-term trending opportunities. Better IRRs typically come over years not weeks.

Asset raising today is not unlike securing a SAG (Screen Actors Guild) card. You have to be in a show to secure one but you can’t secure one until you’ve been in a show. Likewise, the manager today has to prove they have the corroborated pedigree and reputation that would prompt an investor to invest — enough for the investor to tie their reputation and integrity to that bold decision — yet the manager has to secure their first investor in order to concretize that truth to the next investor.

In some ways, it’s always been this way; only today, the barriers to entry are no longer only about access to smart talent, a strong track record or the trajectory and speed of asset growth. There are simply too many boxes that need be checked to ensure long-term stable growth of a firm and fund.

The list of requirements by institutional investors (across business, headline, investment and operational risks) has grown from 211 criteria to 244 of which a marketer can affect about 15. The career risk an investor endures is only mitigated by ensuring all those 244 criteria are indeed being evaluated, approved and verified; anything less, could mean an unexpected SEC subpoena or capital call vote from a pension board when headlines mount in the manager’s direction.

Transparency remains essential and most black box or quant strategies — even those who (post-NDA) are willing to show parts of their quant model — are finding asset raising unexpectedly tough. Even if one’s graced with size (big AUM), reputational pedigree (either by oneself or those with whom one’s associated), a meaningful seed investor or one with top 2% returns — even then — the art of the sale remains an enigma, a “case by case basis.”

We have provided below the necessary arsenal a manager needs to be seen, to be considered and to secure new assets today.

The Necessary Ammunition

A Topographical Map

  •  Before you know where you’re going, you have to know where you are. Spend time understanding your brand, your mission, your strengths and edge.
  • Perform a firm-wide diagnostic of your inventory vs. the resources necessary for where you want to be going, what funds you want to launch.
  • Understand the terrain. Determine who your natural buyer is. Identify your peers and what separates you from them. Create FAQs so you’re well prepared with any questions that could ever be asked about you or your firm. Be prepared.

Third Party Market and Investor Intelligence

  • Investors are wholly unlikely to tell you (the manager) the truth. This is a gentleman’s industry: investors placate, finish meetings gracefully, noting appreciation for one’s time, effort and interest. “Let’s keep in touch;” “We’d like to track you for a while;” “Put us on your monthly distribution;” “Thanks for coming in;” But what do they really think?
  • We believe the only way to construct a successful marketing campaign is to have accurate, actionable information on what the investor really thinks. The only way one can procure this is through a non-benefiting third party who has established relationships of trust, knowing what questions to ask and the discretion, experience and acumen associated with this investigative journalism.

A Targeted Strategy of Approach and Execution

  • Once the investigative market and investor intelligence is procured — only then — can a strategic, targeted marketing strategy be created.
  • The goal is neither to be all things to all people nor to throw a wide net (anti-cold calling or email blasts) but instead to target those investors who 1) have a penchant for your investment style; 2) want what you have; 3) have monies to allocate; 4) have the power to make the investment decisions; and 5) who are the “right” partners for your firm.
  • Initiating the strategy requires a formal program that delineates responsibility for each step and those accountable for that step. It requires a process that ensures consistency of materials, message, approach, and follow up.

Feedback Mechanism

  • Just as market and investor intelligence are core to the construction of a marketing program, so too is feedback to know the effectiveness of the marketing approach and what facets of the story, team, message and materials need to be refined.
  • The objective above all else is to communicate: if the manager is unable to secure an investor’s attention, the question is why. The answer could be a simple fix but typically only a non-benefiting third-party can get to the core of an investor’s impetus for “passing” on a manager or strategy.
  • Once the feedback has been culled, these findings lend themselves to evaluating the approach and tactics to secure investor attention. The approach is refined; such is the benefit of a feedback mechanism in strategic marketing. (Consider it our industry’s focus group)

Follow Up Tenacity and Tactics

  • The one rule of thumb for follow up: it’s entirely dependent on the preferences of each individual investor. There’s no right way nor is there one way. The follow up approach is inextricably tied to the relationship you’ve built, the friendship you’ve created and the personal currency you’ve established.

The Close

  • Would you hire a cook without trying their cooking? Neither should you hire a marketer without hearing him/her pitch. If you’re not swayed toward action, how will an investor be? There’s no greater litmus test to ensure the marketer can command the room, the message and the investor’s attention.

About Minard Capital LLC & Rachel Minard:
Minard Capital is the first outsourced marketing consulting firm dedicated to providing the strategy, investor introductions, rolodex and sales process necessary for alternative investment firms to win and retain global institutional mandates. Minard Capital is not a broker-dealer nor a third party marketing firm. The firm is a fee-for-service consultancy, dedicated to delivering more efficient and effective marketing and branding tactics to raising a firm’s assets, brand profile and sales efficiency. Minard Capital was founded by Rachel S.L. Minard, Chief Executive Officer, a world-renowned hedge fund marketing expert who has raised over USD $10 billion in assets across 18 countries spanning her 20-year career. As the face of the firm and head of global marketing, Ms. Minard also built four (4) fund of hedge fund firms from scratch, each to award-winning recognition.

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