Want institutional capital? Don’t be a pushover.
So, you want institutional capital. The great thing about being a marketing “agency” for alternatives is that you talk to a lot of people vying for institutional money. It gets to the point where managers are almost groveling for that first commitment. My advice is: Don’t do that.
The alternatives industry has matured to such a point that you aren’t going to differentiate yourself by operational experience, pedigree, focusing on the lower-middle market, performance, etc. We hear this jargon 10 times a week. Just imagine how many times an investor hears it. You give me a performance track record of 12% over 10 years, I will give you 50 people with a 15% return track record.
You will never get that first big commitment until you earn the respective institution’s respect. Do you think this happens by showing up at their door offering a 0.5% management fee?
The solution: stand up and be heard in the community. Educate; don’t sell. Be genuine about what you do.
If raising capital is about relationships, then go out and develop those relationships. Don’t go knocking on an institution’s door asking for $20 million. It will do you more harm than good. Instead, prove to the institution that you deserve their support.
Appreciate that there are good numbers everywhere. Why did CALPERS exit out of hedge funds? They were just too bloody complicated. This tells you that all you have to do is to design a product that is extremely simple. Does that have anything to do with performance?
Confidence in your ideas and belief in your capabilities will get you a lot further than kissing ass.
By Kyle Dunn