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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Raising Capital

Raising Capital – Clues for Success

A recent article in the Investment Management Weekly discussed what hedge funds need to do to continue raising capital from institutional investors. The general view of the whitepaper they produced suggested that hedge funds will need to continue to adapt their business models and approach to communicating their investment process to the interests and concern of institutional investors if their strong growth in raising capital is to continue. Paul Schaeffer, the managing directory of strategy and innovation for SEI was quoted as saying, “The hedge fund industry must recognize that the large institutions have a distinct set of demands concerning issues such as the quality of infrastructure, transparency and risk.”

Some of the stated differences in raising capital from institutional investors instead of high net worth investors
included:

• More attention is sometimes initially paid to strategy offered than the individual hedge fund managers
• Longer hedge fund due diligenceprocesses and investment horizon
• More heavy utilization of outside consultants to help evaluate hedge fund managers
• Growing concern over hedge fund risk management and “headline risk”
• Strong preferences for transparency of the hedge funds investment process and tools applied to it
• More likely to invest in $100M+ or $500M+ hedge funds vs. smaller boutique shops

I think the most interesting part of this article was the fact that it reported that over 85% of those interviewed said they would not invest in a strategy that they don’t full understand, and 80% said it was critical for managers to focus on the fund’s original strategies.

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.

- Richard

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Tags: Raising Capital, Raising Capital for Alternative Investments, Raising Capital for Hedge Funds, Capital Fundraising, How to Raise capital, ways to raise capital, hedge fund capital raising, capital raising process, methods of raising capital