MANAGE A HEDGE FUND: MARKETING TO INVESTORS &

RAISING CAPITAL

REALITY

Star%ng   a   hedge   fund   is   no   easy   feat.   It   is   extremely   compe%%ve   and   incredibly  pricey.  It  will  run  you  at  least  $85,000-­‐$100,000  just  to  set  up  your  hedge  fund  –  not  to   include   hiring   any   internal   staff.   It   also   does   not   include   the   expenses   you  will  need   to   survive   during   the   capital   raising   phase.   Many   funds   take   years   to   raise  enough  capital  to  aFract  the  ins%tu%onal  dollars.  So  really  think  long  and  hard  about  both  your  start  up  costs  AND  your  annual  expenses.  Most  managers  forget  they  are  crea%ng  a  business  not  just  trading  a  strategy.  Remember:  Your  assets  are  NOT  your  revenue.  

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WHY  LAUNCH  NOW?  A  ques%on  always  on  an   investor’s  mind   is  what  makes  your   strategy  different  and  how   does   your   background   directly   reflect   that.  Market   environment   plays   a   huge  role  into  how  investors  view  your  strategy,  but  more  importantly  they  want  to  know  that   it   is  a   sustainable  strategy  across  various  market  cycles  –  how  does   it  perform  across  both  the  high  and  the  low  periods?  Is  the  infrastructure  in  place  to  support  the  strategy  during  these  periods?  Market  Cycles  change  all  the  %me  so  in  marke%ng  your  fund   you   want   to   make   sure   to   illustrate   your   successes   not   just   during   the   high  periods,  but  the  low  ones  as  well.    

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WHAT  IS  YOUR  UVP?  USP?  ELEVATOR  PITCH?    Understanding  your  unique  value  proposi;on  (UVP),  unique  selling  proposi;on  (UVP)  and  elevator  pitch  are  vitally  important  to  gaining  interest  from  both  investors  and  the  investment  community  at  large.  Be  sure  to  understand  the  difference.        

Unique  Value  Proposi%on:  A  statement  that  clearly  highlights  the  tangible  results  a  client  can  expect  from  you  in  using  your  product  or  services.      

Unique  Selling  Proposi%on:  A  statement  that  illustrates  your  firm’s  difference  from  your  compe%tors.      

Elevator  Pitch:  A  short  speech  providing  a  general  overview  of  your  business  and  your  market  value.        

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UNDERSTANDING  THE  HEDGE  FUND  UNIVERSE  –  NEW  LAUNCHES  

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UNDERSTANDING  THE  HEDGE  FUND  UNIVERSE  –  INVESTOR  INTEREST  

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5  TIPS  ON  MANAGING  INVESTORS’  EXPECTATIONS  It   is   no   secret   that   it   has   been   a   very   tough   capital   raising   environment   for  managers.  Investors  are  geZng  smarter  and  are  looking  holis%cally  at  a  fund  during  their  opera%onal  due  diligence.  Understanding  how  investors  assess  your  fund  will  help   you  beFer  understand  how   to  prepare   for   those  mee%ngs.  Did   you   check  all  the  boxes?  

Tip   #1:   Set   investment   minimums   to   help   offset   the   operaQonal   cost   and  stress   of   providing   SMAs.   What   is   your   firm’s   level   of   transparency   to  investors?  Do  you  provide  Separately  Managed  Accounts   (SMA)  –  SMAs  are  great,  but  operaQonally   they  can  be  a  nightmare  for  a  small   fund.   Investors  want   to   monitor   your   fund   to   make   sure   that   your   investment   thesis   is  validated  by  investments  made.  You  can  provide  investors  with  a  high  level  of  transparency  without  the  need  of  se]ng  up  SMAs.  

Tip  #2:  Standardize  how  you  deliver   investment  data   to   investors.  Don’t  change  the  benchmarks  provide  an  explanaQon  in  your  monthly  report  for  why  returns  weren’t  what  you  had  hoped.  Are  you  consistently  delivering  the   same  benchmarks   even   in   bad  months   or   are   you  manipula7ng   the  data   to   your   advantage?   Investors  want   to   see   trends   this   is   one  of   the  reasons  why  the  allocaQon  takes  as  long  as  it  does.  Investors  understand  that   bad   months   happen,   but   they   want   to   know   a)   how   bad   did   you  perform  against  your  compeQtors  during  the  down  month(s)  b)  if  and  how  have  you  re-­‐adjusted  your  investment  allocaQon.  

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5  TIPS  ON  DEALING  WITH  INVESTORS  ASSESSING  YOUR  FUND  (cont’d)  

Tip   #3:   Ask   the   right   quesQons   when   interviewing   third   party   service  providers.  Make  sure  they  provide  business  value  outside  of  saQsfying  an  investor’s  ODD   checklist.  How  are   you   ve]ng  and   selecQng   third   party  service  providers?  Who  you  do  business  with   is   important   to   investors.  But  also  you  want  to  make  sure  you  are  choosing  service  providers  that  help   your   firm   grow.   Service   providers   are   only   so   good   as   the   service  they  provide  for  your  firm.  

Tip  #4:  Actually  create  and  write  out  protocols  for  AML  and  Cyber  Security,  don’t  just  say  you  have  them.   Investors  may  request  a  copy  for  review.  What  are  the  policies   and  procedures   that   you  have   in   place   for  AnQ-­‐Money   Laundering   and  what   types  of  Cyber  Security  protocols  do  you  have   in  place?  The   rise  of   cyber  hackers   are   of   major   concern   to   investors   and   if   your   infrastructure   isn’t  sophisQcated  enough  to  appropriately  handle  and  safeguard   their   investment  –  then  guess  what  you  probably  won’t  get  that  allocaQon.    

Tip  #5:  Take  Qme  to  pracQce  explaining  your  investment  thesis  to  someone   who   isn’t   well   versed   in   hedge   funds.   Is   your  investment   thesis   well   thought   out?   Can   they   understand   the  raQonale  of  your  strategy  to  where  they  are  compelled  to  invest?  Just   because   you   understand   the   ins   and   outs   of   your   strategy  doesn’t  mean  everyone  will  even  sophisQcated  investors.      

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THE  CAPITAL  RAISING  PATH  

Tip:  Leverage   your   Prime   Broker’s  Capital   IntroducQon   Team   to  assist  you  in  the  capital  raising  process   whether   it   is   simple  advice  or  real  investor  leads.      

START  

GOAL  

Family  &  Friends  

Small  Ins%tu%onal  Investors  

Large  Ins%tu%onal  Investors  

Seed  Investor  

Start  targeQng  family  offices  and  wealth  managers  

Finding  a  seeder    

First  Round  of  Capital  Raising  (personal  money,  family,  friends,  

HNWIs  and  in  some  occasions  Seeder)  

Congrats!  You’ve  raised  enough  money  to  akract  large  insQtuQonal  dollars.    

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Okay,  LET’S  REVIEW!  

Leverage   your   Prime   Broker’s  Capital   IntroducQon   Team   to  assist   you   in   the   capital   raising  process   whether   it   is   simple  advice  or  real  investor  leads.      

Get  to  know  SMAs  before  doing  one.  Set  investment  minimums  to  help  offset  the  operaQonal  cost  and  stress  of  providing  SMAs.    

Standardize  how  you  deliver  investment  data  to  investors.  Don’t  change  the  benchmarks  provide  an  explanaQon  in  your  monthly  report  for  why  returns  weren’t  what  you  had  hoped.    

Ask  the  right  quesQons  when  interviewing  third  party  service  providers.  Make  sure  they  provide  business  value  outside  of  saQsfying  an  investor’s  ODD  checklist.  

Actually  create  and  write  out  protocols  for  AML  and  Cyber  Security,  don’t  just  say  you  have  them.  Investors  may  request  a  copy  for  review.    

Take  Qme  to  pracQce  explaining  your  investment  thesis  to  someone  who  isn’t  well  versed  in  hedge  funds.    

Tip  #1:   Tip  #2:   Tip  #3:  

Tip  #4:   Tip  #5:   Tip  #6:  

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Get  more  %ps  on  how  to  aFract  investors  to  your  fund.  Schedule  A  Free  Consulta%on  with  Crea%veCap  Advisors  and  make  your  fund  invaluable  to  any  investor.  

 

 

Tyra  Jeffries,  Founder  &  Chief  Execu7ve  Officer  tyra.jeffries@creaQvecapadvisors.com    |  www.creaQvecapadvisors.com  

The  premier  MarkeQng  &  IR  consultancy  for  emerging  managers  

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