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We receive several inquiries a week from managers that struggle getting into conversations. Many of them have excellent performance and an institutional infrastructure.
Between 4 and 10% of all hedge funds fail or close down each year, and countless others are half-started, abandoned or re-shaped into private investment pools for friends and family. The hard truth: It’s a tough world out there and even with a successful track record, it’s an uphill battle against the behemoths of the industry. All of the managers who reach out to us do so because they have found raising capital difficult despite their X-Factor (be it performance, a solid team, etc.).
When capital markets are going south, there’s no chance in hell that anyone’s going to feel the lure of parting with their wallets for a piece of paper, right? What’s hurting the industry, hurts across the board so aren’t managers completely helpless?
No, not really. There are several things you can do. Here are three high-level items to look at, among many others.
First, find the right situation that you can yell and scream. No matter what is happening in the market, if you have something intelligent to say and if done consistently, it’ll be perceived as value-added. It can be a strong macro opinion, a relevant market view, etc. The bottom-line is, you’ll begin to build an audience.
Secondly, go into it with reasonable expectations. Too many people jump in head-first without aligning expectations with reality. We like to ask: “What are you going to do if you don’t grow your fund at all for the next 12 months?”. If we hear, “I’m just going to find another job”, we tell them we won’t work with them because that level of commitment required from the manager isn’t there.
It takes time to build trust with your audience. You’re qualified among others now because of your track record and good performance so far, but you have to back that up with a promise that this isn’t just some private investment pool for yourself to collect fees out of until your retirement. Investors can sniff out if you’re someone with no long-term vision. That’s the last thing they want to invest in. If they sense that you are going to build a franchise, they’ll go with you.
Thirdly, consider broadening your suite of tools by using databases like eVestment and technology platforms like FNEX. In this game of ratios, the more information you have, the better your chances of winning. And if that’s backed up by a platform that helps you to automate your processes, even better.
Have the mindset today that even if another 5 months go by without you having raised another dime, you’ll stay the course and grind out results. In the form of building that audience and providing insightful commentary as you march on. Don’t let frustration get to you earlier than it should; history is littered with examples of people that failed for a long time but succeeded through persistence. Make some noise and you might just be heard.
By Alan Chu