9 Keys To Raising Hedge Fund Capital – Securing the Critical First Meeting With an Investor
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Establishing a relationship with a few key institutional investors and family offices could be the catalyst for significant growth and continued success for a hedge fund manager. Securing the critical initial meeting with these investors is the first hurdle that hedge fund managers encounter. However, once this challenge has been overcome, maintaining the relationship typically requires consistency of investment performance coupled with diligent and professional follow-up.
Getting the nod on the first meeting can be achieved by leveraging the following 9 key areas of focus:
- Be Prepared: Having a professional marketing presentation (pitch book) and one-pager are critical to your success. This is truly your “calling card” and one of the first impressions that you’ll make in your relationship with an investor. The marketing material needs to contain an array of information including an investment strategy overview, a fund performance table, graph of the fund’s performance versus comparable benchmarks, short bio of the investment manager, amongst other key information. Research the investor to know at least a couple of things about their firm, the individual with whom you’re engaged, and specifically which areas the prospective investor allocates.
- Be a Pro: Whether an institutional investor or a family office organization has a conservative corporate culture or a more relaxed culture, their expectations for the investment manager in which they’re entrusting their capital is for the manager to be a true professional. Investors expect the fund manager to be knowledgeable in all aspects of the business, including their investment strategy, economic environments and business cycles. Be a professional and impress upon the investor that you and your team mean business and that you’re serious about managing their assets.
- Be Performance-Driven: It might sound simple and cliché, but sophisticated and savvy investors are looking for strong, consistent investment returns. There will always be discussions about the latest and greatest reporting technology, operational infrastructure, straight-through-processing, regulatory compliance, and the like. However, the bottom line is that investors invest to generate a return on their investment. Otherwise, they wouldn’t be called investors. More so, what’s the point of going through the exercise, the risk, the investment of time, etc. if one can’t generate a return on one’s investments? In order to be recognized by investors, a successful fund manager need not hit home runs, but they must outperform a good number of their peers and generate consistently positive absolute returns.
- Be Institutional: From an internal perspective, demonstrate excellence in the operational infrastructure of your organization. Show that the fund has an institutional-quality infrastructure through established policies and procedures, as well as either an internal or outsourced CFO, COO and CCO. Leverage technology, data rooms and online reporting systems in order to streamline your operations.
- Be Introduced: Align your business with the right service providers. There are numerous elements to consider when selecting service providers, including expertise, brand, reputation, customer service, pricing and value added services such as capital introduction. Consider the commitment of the service provider to your fund’s success. If your service providers offer cap intro, an introduction from a third party is a great way to get to know investors.
- Be Committed: Just as with any other aspect of a successful business, sales and marketing doesn’t just happen by itself. Nor do investors just walk through the door and throw cash at emerging hedge fund managers. A solid sales and marketing plan should be implemented, and a consistent focus on establishing and building relationships must be a priority for the management team. Adding investors to the monthly fund update and newsletter email is a good way to keep investors in the loop without inundating them with data, emails or unnecessary phone calls. Be committed to the process.
- Be Focused: As you prospect the world of institutional investors, family offices and high net worth investors, it is critical that you focus your efforts on the potential relationships that have an interest and appeal for your fund. The investment manager should consider each investor’s appetite for their investment strategy, volatility, early stage/emerging manager/mature fund, current AUM, etc. Investment managers who fail to execute on this front waste their own time and that of the investors. This could also spoil what could be a good future prospective investor relationship as well. Be focused on the right opportunities and relationships.
- Be Consistent: In all aspects of the business. Not only does a successful fund manager need consistent investment returns, but they also need to be consistent in their investment methodology. Institutional investors are not inclined to continue investing with fund managers that engage in style drift. Building and growing the assets of a fund requires consistency of the fund’s investment methodology, the generation of positive returns, and the deployment of a sales and marketing campaign.
- Be Yourself: Don’t get so caught up in what everyone else is doing. Your fund management business has a personality and culture of its own, one which stems from its investment management team. Be yourself and work with like-minded investors. As with any relationship, the dynamic between the manager and the investor is critical for the long-term success for both parties.
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