Good hedge fund managers fail because they get trapped between an overly inflated sense of attractiveness and an LPs fear of saying no to what “could” be a good investment.
Both sides then stare at each other until the manager runs out of operating capital.
That pretty much sums it up.
Good hedge fund managers don’t tend to appreciate that LPs are searching for the “very best,” not someone that is “good,” and most hedge fund managers are just that… good.
So why do “good” hedge fund managers fail?
1.) They believe that “decent” performance will create a buzz sufficient enough to raise capital.
2.) The initial feedback they receive from prospective LPs is positive and this lulls them into a falls sense of “marketing security.” (Remember 95% of LPs that say they are interested… aren’t interested.)
3.) There is nothing “original” about who they are or what they do.
4.) There is nothing “inspiring” about their firm. (LPs are searching for X-factor, that thing that is different, unique, and interesting. Be something more than another suit with another power point deck.)
5.) They aren’t 100% committed, and adopt a “lets see if I can raise any money” attitude. (LPs need to “feel” commitment.)
6.) Managers (good or bad) tend to be entirely oblivious on how information moves in a modern world. (Sending a 30-page deck to someone who you do not know does not work.)
7.) Marketing materials are filled with tired language. (For example, you don’t need to tell an LP that you “mitigate risk.”)
8.) Good managers tend to try to say too much too fast. (If someone were to throw a box full of ping pong balls at you, would you catch any? Probably not. If someone were to throw three balls at you one at a time, would you be able to catch them?)
9.) Even good managers let themselves be pushed around by LPs.
10.) Good managers are so worried about being “institutional” that they stay away from saying or doing anything bold. (Thus they are nothing but another penguin in a long line of penguins.)
11.) Highly pedigreed managers take no marketing risk. (Yes it is a thing… think about it.)
12.) Managers (again, good or bad) don’t account for a mobile world. (Is someone going to read a thirty-page deck on a phone? No! Can someone watch a two-minute video on a phone? Yes!
13.) Good managers don’t use modern marketing technology to profile interest. Example: http://www.meylerautomation.com.
14.) They tend not to understand that marketing is all about repeatability and consistency.
15.) Finally good managers tend to under estimate the marketing budget required to achieve success. (I have never understood why managers will make a personal commitment of $2 million [picking a number] into their fund, and then claim to have “no money” for marketing. LPs won’t discern between $2 million and $1.75 million, which leaves some gas in the tank to get the job done.)
All and all if you are a manager and your performance is “acceptable” don’t take your foot off the gas. Be bold. Act decisively. Continue to build your sales funnel. Marketing never sleeps.
By Kyle Dunn