Why New, Early-Stage and Smaller Hedge Funds Work With Us:
IT TAKES MORE THAN INVESTMENT RETURNS TO ATTRACT ASSETS.
"Intelligent Marketing" is now a mission critical business necessity for a hedge fund.
“76.4% of hedge funds ‘TAP OUT’ their network of investors within 1 year”
Source: How Hedge Funds Can
Strengthen and Build Their Affluent Client Base
(Authors: Prince & Grove - Sponsored by Rothstein Kass)
Since 2011, 50% of the hedge funds that have closed had AUM less than $49m.
At launch the average hedge fund had $26 million in AUM.
2,201 funds, 21% of the 10,482 funds, grew AUM to $100 million or more. It took an average of 16 months to do so.
817 funds, 7.8%, grew AUM to $500 million or more. It took an average of 42 months to do so.
388 funds, 3.7%, grew AUM to $1 billion or more. It took an average of 55 months to do so.
89% of ALL hedge funds FAIL to reach $100 million in AUM, the minimum institutional threshold.
1 out of every 275 sub $200 million AUM hedge funds establishes a "3rd Party Marketing (TPM)" relationship.
Source:"Hedge Fund Survivorship Bias and Attrition" - The Journal of Alternative Investments (http://www.iijournals.com)
Many hedge funds are started as "lifestyle" businesses with little desire for capital beyond personal finances, family and friends. However, for those funds that decide to seek assets from external sources, non-affiliated investors and allocators, "intelligent marketing processes" are mission critical components.
A Serious Commitment To "Intelligent Marketing" Must Be a Priority To Succeed Raising Assets.
The #1 reason most hedge funds fail to raise assets: Poor, inappropriate and ineffective marketing.
Many small funds have the fatal misconception that marketing and raising AUM are only about “producing returns”.
While investment returns are crucial, returns alone are insufficient to
attract and retain assets in the post-Madoff/credit crisis world where uncertainty is greater, regulatory intervention dynamic and increased, litigation risk elevated
and demands by investors and consultants are more stringent as reflected
by protracted due diligence and allocation cycles.
Most smaller funds, even those started by individuals and teams with deep investment experience and outstanding pedigree, seeking to raise assets do not have "intelligent marketing processes". This lack of process manifests itself in the planning stages and then impacts individual tactics. As a result, the vast majority of small funds are in a severely compromised position about the requirements, complexities and nuances of marketing and raising assets. Moreover, most are under-resourced and unprepared to meet the challenges of appropriate qualitative and quantitative investor/intermediary engagement, resulting in chronic failure to raise assets.
Quite frankly, exceptional returns mean nothing if the RIGHT investors
intermediaries don't know about them as well as have a deep
understanding a fund's enterprise-wide processes that serve as the source of creating those returns and how those mechanisms will sustain return realization. If a small fund does
not have the appropriate level of visibility, awareness and
relationships among the most-suitable and qualified investor segments,
it will not raise assets.
"MARKETING ALPHA" is Mission Critical.
Despite all the attorneys, accountants, fund administrators, prime brokers and technology providers available to help launch and support a new or small hedge fund, when it's time for marketing and raising assets it's a solo effort. The responsibility of marketing and raising assets for new, early-stage and smaller hedge funds ALWAYS
resides with the fund.
The truths of raising assets for a new or smaller fund boil down to 3 crucial facts:
Experienced marketing professionals that work with new, early-stage and smaller funds are virtually non-existent.
Without "Intelligent Marketing", a fund will NOT raise assets, despite investing skill and exceptional returns.
If a small fund does not meet the necessary qualitative requirements and standards of highly idiosyncratic investors and intermediaries, then no quantitative metrics will be enough to raise assets.
Astute preparation based on experienced marketing knowledge and near-flawless execution of a documented clear,
concise, consistent, compelling and regulatory compliant strategic and
tactical marketing process, which succinctly articulates the fund's
idiosyncratic viewpoint (investment philosophy), behavioral
(operational) distinction and competitive edge to enable the continual
efficient identification and appropriate effective engagement with the
most qualified, suitable investors as well as intermediaries given the
fund's profile (strategy, size, operational strength, etc.) is vital for a small
In sum, to be successful raising assets, marketing must be organized, structured, systematized and efficient. A small fund must take COMPLETE OWNERSHIP and LEADERSHIP of marketing in tandem with appropriate skills, solid investor/intermediary relationships, proper human and technological resources, objective insight, accurate information, acute intelligence, understanding of regulatory requirements and distribution options to enable PROACTIVE, HIGH-LEVEL EXECUTION CONSISTENCY, from a factual belief that the RIGHT things are being done RIGHT, reaching the RIGHT investors/intermediaries given the fund profile. That's "INTELLIGENT MARKETING" and "MARKETING ALPHA".
For a new or smaller hedge fund, "Marketing Alpha" is as important as investment alpha.