Confessions of a Hedge Fund Allocator Turned Marketer

A while back, we had a chance to sit down with David Modiano, an experienced hedge fund allocator, to discuss his perspectives on fund marketing. Since then, David has taken the opportunity to experience investing from a totally different perspective – that of hedge fund marketer. David made the change nearly three years ago when he joined Mill Hill Capital as a partner and head of business development. Since then, he has been instrumental in the firm’s ability to secure a seed capital partner and continue growing its asset base.

We recently revisited the conversation to hear about what he has learned and his experience being on “the other side.” While he was clear to point out that his comments are in no way specific to Mill Hill, he laid out what he believes to be the biggest misunderstandings managers have about marketing their fund.

1). Hedge funds are “bought” not “sold”

Institutional investors have mandates. They spend a lot of time both internally with their investment committees and externally with consultants determining how to allocate capital over a multi-year period.

“A common manager mistake is thinking a great product is all it takes to generate immediate interest,” he says. “Just as you are probably not considering a Lamborghini for your family of six, a LP is unlikely to consider investing in a managed futures fund when she is focused on, say, low net strategies. Investors know what they want and if your fund doesn’t fit that mandate, you won’t change their mind.”

2). Fit matters

No one will invest in a manager if the performance is not there. That’s a given. But it’s unlikely that any institution will invest just because of performance either.

“Few managers spend enough time contemplating the problem they purport to be solving for their investors besides performance,” he points out. “How do you fit into the investor’s portfolio? Why do they need to care about you? Investors will be much more receptive to your story if the answers to those questions are clearly laid out for them.”

3). Reputation is also important

Many managers wait until a period of strong performance and then rush to market in an attempt to capitalize. As David puts it, “Institutional investors have a long, comprehensive decision process. There is value to playing the long game.” This is still a trust business and it takes a lot of time and effort for an investor to get comfortable with you, your value proposition and the opportunity.

He goes on to say, “You cannot wait until they launch an RFP for them to hear your name for the first time. Investment portfolios evolve over time – so get to know them as people, develop a genuine relationship. Sometimes the goal is simply just to be top of mind and well respected when they consider re-allocating in your direction.”

4). Marketing is a full-time job

Just as is the case with performance, the not-so-hidden secret to success in marketing, is consistency. “Far too many managers seem to treat this their messaging and marketing as an afterthought. But I can tell you from experience, to do it right entails an incredible amount of work,” he admits.

“I don’t know many CIOs that would be comfortable taking the kinds of shortcuts in their investment process as they seem comfortable taking in their marketing process.”

By JD David