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Cap intro and asset-gathering executives prescribe best practices

INVESTMENT INDUSTRY INSIGHTS  | 

Cap intro-focused executives and their asset-gathering colleagues convened an interactive panel at RSM's New York offices to highlight and discuss best practices and approaches, along with common errors that hinder the process of raising capital. The panel of four offered perspectives from both sides of the cap intro world, and included an allocator as well as an analyst gatekeeper. RSM partner Alan Alzfan moderated the session, which quickly focused on familiar communication problems inside the cap intro world.

"I've seen so many presentations by fund managers where their slides are not even readable—and they stand up and they immediately say, 'I know no one can read this, so let me explain it,' commented Dan Lancellotti, managing partner of CapitalDynamo and former global head of Citi's Capital Introduction Group.

"Now, why would you do that? Just change the slide!" he advised the audience. "You have to make a commitment to your marketing, and it doesn't necessarily have to cost you a lot."

David Henry, CFA, an investment relations director for a Boston-based hedge fund, said that many investment firms give marketing "a short shrift" and is a practice that was altogether too common inside the cap intro world.

"Investment managers believe there's this Field of Dreams, and if I have great performance numbers, people will come. Well, guess what? There are a thousand other guys who have those same numbers. Success comes when you figure out how to differentiate yourself," Henry stated.

Matthew Denning, global head of equity at EIM Management, said that cap intro executives sometimes overstate their achievements when attempting to set themselves apart: "As an allocator, many times we'll clump or tier hedge funds within groups . . .  and while performance drives a lot of the classification game and how we think about hedge funds, there are certain buzz phrases that managers sometimes say that can really tick off allocators and make us say, "Forget it—I don't want to deal with this manager.'

Lancellotti underscored his own growing frustration: "I can't tell you how many times we hear: 'We're really the only ones doing this.' And how might that be with a blindfold and a dartboard? Honestly, there are thousands of funds out there; you are not the only ones doing it this way. You must know your competition."

To succeed at building relationships with allocators, Denning further advised funding seekers to be more forthcoming with information about their performance: "Make sure that your firm understands that, when it comes to building your relationships, it's very important to be transparent. Be open, talk about your trades, show them your portfolios. It's important because it sets a tone—that you're a good partner to be with."

When remedying marketing shortcomings, RSM's Alzfan said that it was important that managers raising assets should work with third-party marketers who are aware of their target investor. "You want to make certain that the third-party firm is aligned with your investment strategy and who you'll actually be targeting. So, for instance, if a firm deals only with endowment and pension plans, and they are not the right type of investor for your fund at that point in its life cycle, they may not be right for you. You will be either wasting your time at meetings, which will not result in an allocation, or you won't get a meeting at all."

A hedge fund with critical mass can greatly benefit from having its own internal marketing talent. On the other hand, hiring an experienced third party marketer might be a better fit for a small fund, said Vincent Thompson, head of client development for The Rohatyn Group. He added that, whether the fund decides to use a third party marketer or an internal marketer, it's important to strike a balance between marketing efforts and producing strong investment returns. Too much time on the road or in front of clients can be distracting to investment professionals and lead to subpar returns. A good marketer can really add value by being a strong ambassador for the firm. "The hedge fund's PMs and traders will have a lot more respect for its marketers if they can prequalify real leads, so that the PMs don't find themselves flying halfway across the country for an introductory meeting in which they find themselves explaining what long or short equity is to someone."

Responding to an audience question about how to get through to hedge fund allocators, Thompson gesturing toward Denning, suggested that marketers have some sympathy for the volume of unsolicited emails from managers that hedge fund allocators must wade through on a daily basis.

Denning said, "If the performance is that good, most allocators will have some interest down the road. In the interim, send them your monthly updates, and when the performance is that good, maybe then you get on the phone. But if you know that the allocator has no interest right now, don't bog down their inbox and don't call every month."

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