FASTTRACK FUNDRAISING FOR SMALLER HEDGE FUNDS  

"Intelligent Marketing” – How start-ups, first-time funds and sub $250 million AUM hedge funds get from interest, introductions & discussion to allocations!

Kyle Packer/Jason Herr The Mutiny Fund

September 12, 2014 8:00 AM TO 10:00 AM

STRATEGIC DISCUSSION 

Bryan Johnson - Managing Partner Johnson & Company

Unique Clients. Distinctive Services. Exceptional Solutions. One Congress Plaza 111 Congress Street

Suite 400 Austin, Texas 78701

www.johnsn.com

89% OF ALL HEDGE FUNDS FAIL TO REACH $100 MILLION AUM

81% OF ALL HEDGE FUNDS HAVE NO MARKETING PLAN.

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Hedge Fund Marketing: Common Approaches

Process-based

Performance-based.

Prestige-based

REPUTATION, RETURNS AND RHETORIC WON’T RAISE ASSETS !!

“We consistently out-perform applicable benchmarks”

“Worked prop desk at XYZ Investment Bank ; trader and PM at ABC fund, which was an $X billion fund”

“Experienced, robust operational blueprint with brand-name service providers”

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EXPLAIN YOUR PROCESS SIMPLY  

MARKETING: FROM PRE-CREDIT CRISIS AND MADOFF TO NOW !

INVESTORS ARE MORE INFORMED, HAVE GREATER ACCESS TO INFORMATION AND HAVE MORE EXPERIENCE.

B.C. A.D.

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ALLOCATIONS ARE ACTS OF “TRUST”…..

In YOU, the Person YOUR Process and YOUR Performance!

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“Long story short, we need to be able to track you somehow. We need to know you directly, or you need to come in from some source known to us. If we don’t at least know someone who knows someone who knows

someone who knows you, we just aren’t going to look at you. Why? We only do business with people we know – it’s too risky to do anything else these days. We do not have the time to check out people we have no

connection to. We don’t do business from cold calls.”

West Coast single-family office executive’s explanation of how they select managers.

Source: Survey Comments by Family Office Executives  

THE RIGHT MARKETING RITUALS (PROCESS) AND RELATIONSHIPS RAISES ASSETS!

96% of investors believe funds today are below average in TRUST.

“The evidence has been overwhelming that investors are intensifying their focus on enterprise processes. While investment return was once the only consideration for high-net-worth and family office investors, they have now joined with institutional investors in demanding greater transparency in the process behind the performance, everything, including organizational structure, reporting process, technology and service provider relationships, is a factor in the capital-raising effort.”

- Head of Financial Services Advisory Practice Accounting/Advisory Firm

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WHAT DO KEY PARTICIPANTS SAY ABOUT “PROCESS”? It takes more than exceptional returns for a small hedge fund to raise assets!

“The goal of our due diligence process is to provide the information and insight needed to make the most appropriate manager selection with comfort and confidence. We use a peer review committee to review all the candidates. The client receives a due diligence report for all the semi-finalist candidate firms and then conducts interviews with each of the finalists. Although a manager’s long-term track record is considered, it is not the main driver for selection.”

- Practice Leader One of the largest independent investment consulting firms in the country.

"We have a very qualitative approach, we do not buy a track record. We want to buy process.” - Global Head of Alternative Investment Strategies

Top 10 Consultant

“Performance is of secondary importance to perceived safety and a reduction of headline risk. As such, a high quality product offering and strong historical returns are not enough for small mangers to attract assets. They need an effective sales and marketing strategy. Managers now realize that high-quality marketing is a critical element of a hedge fund's long term survival”.

-Managing Partner Top 3rd Party Marketing Firm

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STRATEGIC

TACTICAL

FINANCIAL

• What is said, how it’s said, and who it’s said to. • Often a "gap" exists between what a fund believes it is communicating and what investors actually comprehend. • Disciplined strategic marketing closes that gap. • Delivers information and knowledge that can compress the allocation process, increase conversion (closing) ratios and deliver AUM expediently and efficiently.  

• Execution: Proactively sourcing and engaging investors/intermediaries, generating leads, creating marketing tools, distributing research, fund information and performance data, creating marketing collateral, implementing a robust CRM for efficient and effective outreach and investor relations, etc. • The vast majority of small hedge funds begin tactical marketing with: insufficient quantity of qualified, suitable and appropriate prospects, poor qualitative data about prospects and the marketing climate and fail to make sufficient qualitative and quantitative contact with prospective investors and key intermediaries to yield allocations.  

• Marketing and raising assets takes $$$ and continual financial commitment. • Done “in-house” or “outsourced” via 3rd party

relationship/engagement, there are costs. • Most small funds rarely have a sufficient

understanding of the total "true" financial aspects of marketing.

THE MARKETING PROCESS THE 3 KEY COMPONENTS: STRATEGIC, TACTICAL & FINANCIAL

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MOST HEDGE FUNDS HAVE NO MARKETING PROCESS OR PLAN. AS SUCH, THE VAST MAJORITY USE INAPPROPRIATE, INEFFECTIVE, INADEQUATE AND INCONSISTENT MARKETING LEADING TO CHRONIC FAILURE RAISING ASSETS.

THE STRATEGIC APPROACH: THE I.O.N. PROCESS

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INVESTORS  

I  I  

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I  I  

I  

I  I  

 I  I  

O  

O  

O  

O  O  

O  

   O  

O  

   O  

O  

N  

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THE 3 ESSENTIAL STRATEGIC EVALUATION POINTS IDIOSYNCRATIC APPROACH OPPORTUNISTIC ABILITY NON-IMPROVISATIONAL OPERATIONAL BEHAVIOR  

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IDIOSYNCRATIC  APPROACH    OPPORTUNISTIC  ABILITY    NON-­‐IMPROVISATIONAL  OPERATIONAL  BEHAVIOR  

THE 3 CRITICAL EVALUATION POINTS OF YOUR STORY: WHAT DO INVESTORS REALLY WANT TO KNOW !?!? YOUR PROCESS!

• Alpha generation is a result of the unique way a manager looks at the investment opportunities set i.e. “world view”. The “world view” shapes the execution blueprint: the character and make-up of the firm, trading strategies and infrastructure. Performance is a result of process. Process is determined by “world view”. Communication and education of PROCESS i.e. “world view” are offensive marketing strategies to increase investor retention rates.

IDIOSYNCRATIC DO YOU HAVE A REAL EDGE?

•  Markets are more volatile. Trading opportunities more capricious. It is critical that a fund be able to demonstrate consistent ability to opportunistically execute in its core competency as well as capitalize on new opportunities. OPPORTUNISTIC

CAN YOU CONSISTENTLY EXPLOIT YOUR EDGE AND FIND NEW ONES?

• Investors seek investment risk; process (operational risk) is unacceptable. A fund must show that it not only adheres to documented process and procedures but does so consistently. Accurate reporting, verification and replication of performance instills confidence that profits, performance and NAV have integrity. This requires experienced human resources and robust technological capabilities, internally and externally (independent administrators and 3rd party pricing services). Operational robustness/excellence has become a source of competitive differentiation.

NON-IMPROVISATIONAL DO YOU HAVE A STABLE BUSINESS AND INVESTMENT

ORGANIZATION WITH ROBUST OPERATIONAL EXECUTION BLUEPRINT?

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STRATEGIC MARKETING: COMMUNICATION CONTEXT AND CLIMATE: LANGUAGE & MESSAGING

Rule #1 – People buy on EMOTION, justify the decision with LOGIC and make decisions in SILENCE. Rule #2 – People buy from people they KNOW and TRUST, who they feel are HIGHLY-COMPETENT. Rule #3 – People buy when the PROCESS is CONSISTENTLY EXECUTED FLAWLESSLY.

Character   Chemistry

Caring Competence

Trustworthiness: Honesty and integrity.

“FIT”: Shows you understand them and their needs deeply.  

Empathy: Value them as people; willingness to listen and collaborate rather than present fixed solutions. Your key ratio: 2-2-1 !!!  

Skills and experience: The knowledge base and skill set to help them solve their complex issues and demonstrated ability to be a leader in your area of expertise.  

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THE CRUCIAL CATALYSTS: RELATIONSHIPS + COMMUNICATION + EDUCATION  

SURVEY RESULTS Survey of 500 investors with at least $50 million in investable assets

91.1% said the reason they did not invest was the marketer did not understand them.

Fix “trust killers” and improve “trust builders”: To effectively allocate scarce resources, identify the activities that kill trust and build trust.

STRATEGIC MARKETING  • Do you understand the “REAL DRIVERS” of the allocation decision?

• Are your meeting THEIR emotional needs and motivations?

INTERMEDIATION  • Have you identified the TRUSTED/STRATEGIC advisors who play an important role in the investor’s decision-making process?

• Have you established a relationship of “360° CONFIDENCE” with each prospect?

  Emotions are the gatekeepers to the intellect.  Most funds lead AND emphasize the WRONG

“emotional” message. They focus on providing intellectual information (PERFORMANCE DATA) and logical reasons (DIVERSIFICATION, etc) to justify the allocation decision.

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The 5 “C’s” - Clear, Concise, Consistent, Compelling & COMPLIANT (Regulatory)!

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CURIOUS SKEPTICISM – SOLID INTEREST – STRONG BELIEF – ACTIONABLE CONVICTION

RISK: Reputational, Business, Headline, Execution & Operational RETURN: CONSISTENT UNCORRELATED PERFORMANCE

WHAT’S THIS?? THIS!! TRANSPARENCY REQUIRES

EDUCATION

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EXPLAIN YOUR PROCESS SIMPLY  

ATTENTION

ALLOCATION ATTRIBUTION: THE BIG “6”  ALLOCATION

“Track Record”: What Does That REALLY Mean? Idiosyncratic behavior in the manager evaluation process: qualitative -vs- quantitative metrics  

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STRATEGICALLY TELLING THE STORY ABOUT YOUR PROCESS !

“TRUST BUT VERIFY” Vladmir Lenin (1870-1917) Russian revolutionary &

politician  

1. THE “RIGHT” STORY

2. THE “COMPLETE” STORY

3. THE “ACCURATE” STORY

4. THE “WELL-TOLD” STORY 5. THE

“APPROPRIATELY PLACED &

DISTRIBUTED” STORY

6. THE “DISTINGUISHING”

STORY

7. THE “BELIEVABLE”

STORY

“The 7 Elements of Style”

“TRUST BUT VERIFY” Vladimir Lenin (1870-1917)

Russian Revolutionary and Politician

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