Capital Raising Methods and Focus

Below is a paragraph excerpt from a book I am writing on hedge funds, which will be published through Wiley in 2010.  It shares some advice on targeting different types of investors.  While other consultants in the industry charge $250-$400/hr to provide this advice to hedge fund managers I give it away here on my blog for free and soon in my book because my business is based on being a source of genuine education and valuable resources instead of just press releases and news re-runs.  If you are looking for more free advice on capital raising please see our Hedge Fund Marketing & Sales Guide or ThirdPartyMarketing.com.  

The method by which Tassini Capital Management was raising capital was not effective. In addition to not using an Investor Relationship Management System the team had somewhat randomly been approaching many different types of investors from large European banks to small seed capital providers. The third party marketing firm consulted Chris and Brian Tassini and found that they were both un-willing to part with equity ownership in the management company of the fund in exchange for capital. They also reviewed past notes and confirmed that all efforts to work through institutional investment consultants had been stalled due to sub $100M AUM levels.


The result was a much more focused method of systematically approaching a mix of investors which included 10% institutional investment consultants, 50% wealth management firms, 20% multi-family offices, and 20% high net worth individuals. While institutional investment consultants were not going to invest any time soon they were kept in the mix so that the team could continue to receive valuable institutionalization feedback from the consultants.

Learn more about capital raising within our Hedge Fund Marketing & Sales Guide.

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Tags: Hedge Fund, Hedge Funds, Alternative Investment Marketing, CTA Marketing, Capital raising methods, hedge fund investors, types of hedge fund investors, how to raise capital from investors or hedge funds

Hello, This is Richard Wilson, below is a paragraph excerpt from a book I am writing on hedge funds, which will be published through Wiley in 2010.  It shares some advice on targeting different types of investors.  While other consultants in the industry charge $250-$400/hr to provide this advice to hedge fund managers I give it away here on my blog for free and soon in my book because my business is based on being a source of genuine education and valuable resources instead of just press releases and news re-runs.

The method by which Tassini Capital Management was raising capital was not effective. In addition to not using an Investor Relationship Management System the team had somewhat randomly been approaching many different types of investors from large European banks to small seed capital providers. The third party marketing firm consulted Chris and Brian Tassini and found that they were both un-willing to part with equity ownership in the management company of the fund in exchange for capital. They also reviewed past notes and confirmed that all efforts to work through institutional investment consultants had been stalled due to sub $100M AUM levels.


The result was a much more focused method of systematically approaching a mix of investors which included 10% institutional investment consultants, 50% wealth management firms, 20% multi-family offices, and 20% high net worth individuals. While institutional investment consultants were not going to invest any time soon they were kept in the mix so that the team could continue to receive valuable institutionalization feedback from the consultants.

Tags: Hedge Fund, Hedge Funds, Alternative Investment Marketing, CTA Marketing, Capital raising methods, hedge fund investors, types of hedge fund investors, how to raise capital from investors or hedge funds

What Investors Want

What Investors Want From Hedge Funds Today

As much as hedge funds want to move on from the last 12-18 months, investors may not be so willing to forget and forgive. Some managers may believe that with returns back at respectable levels in the first half of 2009 the recession is over and investors will be as eager as they once were to invest in hedge funds. Standard & Poor’s Ratings Services suggests that potential and current limited partners will be reluctant to return unless hedge funds meet some high expectations such as greater transparency and communication with investors, lower leverage, and higher liquidity.

Investors and many hedge funds agree on the benefit and need for greater transparency and communication with investors, but those reluctant funds may see a dip in investors if they do not open up to their limited partners:

Many funds have realized that the benefits of being transparent outweigh the potential cost from the outset, enhancing investor goodwill. After all, during times of uncertainty, such as the recent financial crisis, investors’ focus seems to shift to return of capital from return on capital…Investors will likely increasingly judge a hedge fund based on the transparency of its dealings with all its business partners.

S&P Rating Services also highlights that investors are looking for less leverage after the credit crisis and the fall of highly-leveraged investment banks like Lehman Brothers. Additionally, this may draw attention from regulators looking to ensure that financial institutions are not too leveraged that they pose a “systemic risk.”

Most rated hedge funds with a 10-plus year history have generally understood that they can succeed or fail by leverage — borrowings or embedded leverage in instruments that can magnify both gains and losses — and have accordingly used it sparingly. Some funds have come to shun the use of leverage altogether because of its inherent risk.

In general, we believe investors will be more attracted to hedge funds that use low to modest balance-sheet leverage relative to their investment strategy in conjunction with a strong risk management system, which should enable them to respond to market changes more promptly. source

A consistent push by investors has been for greater liquidity after some hedge funds collapsed in the credit crisis because they had such a high concentration of illiquid positions in their portfolios. Furthermore hedge funds that simplify their operations–by reducing staff, number of strategies implemented and a greater focus on the core elements of the hedge fund’s strategy– may be more attractive to investors. With a refocus by hedge funds on the strategy that made consistent returns S&P Rating Services believes that hedge funds will regain investor trust and win big in this volatile market.

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Tags: hedge funds, hedge fund returns, hedge funds 2009, industry volatility, investor confidence, growing capital, hedge funds investor relations, hedge fund investors, limited partners

Hedge Funds Investors Lock Up

Cerberus Funds Set Strict Lock Ups for Investors

Cerberus is launching two new hedge funds and these funds may bar investors from withdrawing their money for at least 3 years in exchange for lower management fees. Cerberus’ two multi-billion dollar funds will specialize in distressed investments. The use of a lock up period is controversial because investors are unable to take their investment out if the fund starts to do poorly. Yet managers insist that it will be better long-term because it allows a hedge fund to invest without fear that limited partners will take back their pledged capital. Lock ups are employed so that investors do not leave a fund en masse causing it to collapse or sell assets for a low price in a down market. Watch the video here:

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Tags: Hedge Fund investors, lock up period, withdrawal, hedge fund withdraw, limited partner lock ups, lock up investors, capital, term agreements

Databases & Directories of Investors

Our team is collecting feedback on what specific databases and directories of investors would be most useful to Hedge Funds, Long Only Managers, Commodity Trading Advisor funds, Real Estate Funds and Private Equity funds. To date we have compiled the following list, have we missed a type of investor you would like to obtain contact details on?

• Pension Funds
• Endowment Funds
• Foundations
• Single and Multi-Family Offices
• Wealth Management Firms and Financial Planners
• Hedge Funds
• Fund of Hedge Funds
• Private Equity Funds
• Real Estate Investment Trusts (REITS)
• Prime Brokerage Firms (for capital introduction contacts)
• Third Party Marketing Firms
• High Net Worth (HNW) Individuals
• Ultra High Net Worth (UHNW) Individuals
• Seed Capital Providers
• Sovereign Wealth Funds
• Angel Investors
• Venture Capitalists
• Film & Movie Funding Groups
• Litigation Funding Sources

What are we missing? What do you need for your business to grow?

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Hedge Fund Investors

While hedge fund have been hit with redemption notices and industry fraud I believe that many are doing very well right now and hundreds more are being launched each quarter. Below is a short excerpt from a recent Economist article:

…A recent survey of most of the world’s big hedge fund investors, by Goldman Sachs, suggests that clients remain surprisingly happy. Only 15% of their assets are subject to “gates” that stop them withdrawing money, suggesting there is little pent-up demand for further redemptions. Indeed, recent comments by several big managers indicate money is flowing back into their funds now. And, according to the survey, clients think funds of funds will continue to supply just over half of hedge-fund assets under management. source

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Video – Investor Questions

Video | Investor Questions for Hedge Funds

Great video here addressing many issues I believe hedge fund investors would like to have answered right now. It discusses distressed assets, hedge fund redemptions and how the current market is changing the hedge fund industry and how investors view hedge funds. Within this post there is a discussion about the opportunity within the areas of distressed assets, short sellers and CTA funds. If you are viewing this article via our daily hedge fund newsletter please click here to watch the video now, otherwise please see below.

View over 50 additional Free Online Hedge Fund Videos

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Hedge Fund Investors

Attracting Hedge Fund Investors

I recently received this email…

Richard, I am involved in the management of a new hedge fund that we started last year. Our hedge fund’s strategy is a combination of stock and derivatives. Our goal is 30%+ growth per year, and thus far, we are right on track. What I wanted to ask you is this: Are these types of earnings competitive within the hedge fund world? If we continue with this kind of performance, would this type of growth be attractive to third party marketers?

John, If you could sustain 20%+ returns over 5,7 and 10 years and show positive growth during quarters of negative equity market performance it will help. The incentives in the hedge fund world favor those that are long-term greedy not quarter-to-quarter or year-by-year short term greedy. The trick is consistency. It is better to have a 28% returns for 10 years than 100% returns for 3. You will be attractive to many groups, including some third party marketing firms if you have a deeply experienced team, understandable and repeatable investment process, solid returns, good portfolio risk controls and a sound business behind all of this. A recent report showed that institutional investors look very closely at the risk management controls in place for both the portfolios being managed and the hedge fund business itself.

Here is a direct link to the article mentioned above: Institutional Hedge Fund Marketing

Interested in hedge fund marketing? Read dozens of more hedge fund marketing & sales articles along with details on third party marketing within the Hedge Fund Marketing Guide.

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Hedge Fund Investors

Interested in hedge fund marketing? Read dozens of more hedge fund marketing & sales articles along with details on third party marketing within the Hedge Fund Marketing Guide.

Sometimes I get to speak with other third party marketers and hedge fund marketing professionals about their experiences in working with hedge fund investors. What I find is that overall most marketers experiences are very similar while each investor is different just as each due diligence process within different firms vary. Hedge fund investors typically fall into one of these four categories:

The “Follow Me” Hedge Fund Investor

Most of these investors make up your pool of family, friends, co-workers, and people you interact with regularly. Usually, these people don’t understand how to perform the necessary due diligence in making a decision to invest. This group also tends to make assumptions. For example, if a manager holds a degree from Harvard or has experience from a top financial firm, this aspect alone would persuade investors to follow suit ignoring the probability of fraud. In addition, they heavily rely on personal acquaintance and recommendations from either you or someone you may know. If you ask for a check, and they trust you, this group will most likely give one to you.

The “Send Me a Prospectus” Hedge Fund Investor

This group is a bit more sophisticated by conducting a minimum amount of due diligence into the manager’s performance. Once they are satisfied with the performance on paper, they will meet with and usually shower the manager with questions regarding every aspect of the fund, including returns, performance, strategies, and risks. What is written and spoken by the manager is taken into faith and the information is not properly verified by the investor.

The “Investigating” Hedge Fund Investor

This type of investor is sometimes considered a nuisance by busy professionals who might caught off-guard by their questions. Not only will the investor keep the manager’s number on speed dial, the investor will perform the due diligence above and beyond the type mentioned above and also go far as to understanding the entire operation of the fund as if he or she were the manager. This type would also interview members of the manager’s staff. The investor would also look into the balance sheet, cash controls, reporting, and other functions, not directly related to performance. Nuisance?

The “Independent” Hedge Fund Investor

The due diligence collected by this investor is thoroughly reviewed independently. Investors in this category know that independent opinions are extremely important. They will contact the auditor, custodian and administrator in addition to the SEC and/or state securities agency. They won’t sign on the dotted line until they are satisfied independently verifying everything that matters, including, assets under management, returns, and even a year end audit. They fully understand the risks that are involved.

Nobody likes to be put in a box, but it is important to realize that the types of investors can vary widely so the array of marketing materials you have should include brief one pagers to very detailed institutional-quality PowerPoint presentations and third party analysis for those most scrutinizing parties. My experience has been that marketing material first built to the highest standard and then summarized into smaller “dumbed down” pieces later can be very effective and versatile.

Read dozens of additional articles like this within the guide to Hedge Fund Terms and Definitions.

- John Lee & Richard Wilson

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Hedge Funds Crush Mutual Funds

Interesting fact for anyone out there working in the hedge fund industry or tracking its growth. In 2007 hedge funds have gained over $279 billion in assets while mutual funds have only gained $79 billion.

“The hedge fund industry’s 3.5% return in October was the highest in the past seven years,” says Sol Waksman, chief executive officer of BarclayHedge Ltd. “Nevertheless, recent market turmoil has made investors a bit more cautious about investing in hedge funds.”

- Richard

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Article Source: HedgeWeek