The Fundraising Dilemma For Start-Up Hedge Funds
The 2019 Preqin Global Hedge Fund report (sample here) indicates that nearly 80% of institutions will maintain or increase their allocation into hedge funds in 2019.
UBS’ Global Family Office Report 2019 (available here) reports that allocations into hedge funds have dropped for the 5th year in a row.
“Family offices have doubts about hedge funds’ ability to protect wealth during economic downturns and they dislike what some deem to be relatively high fees when compared to performance.”
It’s hard to refute that start-up and small HFs are in a tough spot. Institutions are increasingly favoring large, established managers, and the more dynamic early money continues to step back.
If you are one of those caught at the bottom of this widening chasm, the path forward is tough to navigate. Here are some questions to help you formulate a plan.
Are you actually offering investors something unique, or are you relying on an inefficient market (the general lack of transparency across the alt sector) to raise capital?
If you are being entirely honest with yourself, if an investor had all the facts at her or his disposal, would they allocate money in your direction? If the answer is no, or unlikely, best acknowledge that it might be prudent to change how you plan to raise capital. If you are relying on a deck and a few relationships (or the relationships of a placement agent)… your chances aren’t good.
If you are relying on an inefficient market (which is ok) how are you going to eclipse the competition, and draw enough attention to get you fair share of the pie.
Our industry thrives in taking advantage of inefficient situations, you simply need to have a strategy. And talking about “performance” isn’t a strategy. How are you capturing mind share, are you saying something different, and have you broken down your story in digestible sound bites?
Are you leveraging technology?
If you can leverage your relationships and raise $200M you deserve a beer. That said, most people can’t. This puts you in a position where you need to talk to people that don’t know you. Best understand that out of the gates, they don’t care about you. Reality is such that you need to talk to a lot more people than you expect to gain any traction. This is not a manual process. And if you are talking to a placement agent, ask them what they are going to do after they talk to everyone they know.
Have you examined other highly competitive industries to determine what leads to and sustains success?
Quick, name the performance statistics BMW’s new M5. You probably can’t, can you? Although I assume you are familiar with the brand. No, none of us have BMW-type budgets, however, building a strong brand strategy from day one is paramount.
I am hopeful that these four questions change the trajectory of your thinking and lead to positive results. Appreciate that there are dozens of more questions, however, it is unlikely you have even read this much… which should tell you something about the length of your marketing deck.
By Kyle Dunn