March 2, 2016 Leave a comment
Management fees. Incentive fees. Administrative fees. Audit fees. Trading charges. Potential tax inefficiencies. These are some of the costs that are naturally associated with hedge funds that investors bear. As a manager, your job is to prove that you have the ability to compensate above and beyond all of these potential downfalls.
Managers usually convey their prowess by touting common industry mantras such as, “alpha generating, risk-adjusted, non-correlated returns.” Investors hear verbiage like this consistently; it is industry terminology that does not explain what you actually do. Compounding on similar pitches as their peers, fund managers also have a tendency to present charts, graphs, data, and marketing materials so similar that differentiation is close to impossible. There are too many resemblances among competing funds. Funds that rely on template marketing materials often find themselves coming across as a commodity rather than a differentiated option with valued active portfolio management.
If you were in the investor’s proverbial shoes, wouldn’t it be refreshing to hear how the manager chooses and manages their positions; to have the fund’s strategy articulated clearly and concisely; to understand the hedging processes that protect the portfolio from abnormal drawdowns; to get a sense of the manager’s soft skills? How easy have you made it for investors, consultants, and marketers to comprehend your fund’s story? Do you have simple enough explanations that a layperson would understand?
Many would agree that these are great points to articulate. However, many managers do not know how to go about doing so. I would suggest taking notes from job seekers. A bright job seeker has multiple means to express their message, strengths, and skills. Fund managers should follow suit – after all, isn’t it your goal to get hired for the job of managing capital?
In order for an investor to “hire” you, you have to articulate your fund’s investment process and what makes the results repeatable through different market conditions. This is the major point investors want clarification on. Focus on the qualitative benefits of your fund first, followed by the quantitative. Many managers have difficulty telling their story. Turn this into your chance to rise above the crowd. Pinpoint and express the unique aspects of your fund’s approach. This is especially important if you are running a common strategy.
Here are some guideposts to abide by: Why does your strategy warrant attention in the current market conditions? How does your strategy perform in the present environment? What are your strategy’s strengths? Weaknesses? How do you compensate for the possible weaknesses? Illustrate these points through concrete trades from the past and hypothetical situations. Investors will always be scouring the landscape for opportunities that produce consistent positive rates of return, bond-like volatility, and a low correlation to long-only related assets. Using these as your benchmark measures of performance, if you can successfully prove that you also have proven processes to soften downside risk, you will have a message that will turn heads. Working these points into an editorial will be invaluable. Think about what a job seeker places on their cover letter. The writing should be able to articulate your value long after the interview is over.
Those that can properly demonstrate transparency in their pitch and investment processes will always be favored over their peers. Allocators are continuously surveying the landscape for strategies with clear value propositions that they understand and are able to explain to the parties that they work for. Treat your marketing material like your fund’s resume and cover letter – convince your reader with more than quantitative data. Tell the story as to why you should be hired. If you integrate these points, you are that much closer to an allocation.
Trevor L. Zeh has connected and collaborated with managers for 5 years to establish hedge funds, incubator funds, and various pooled alternative investment vehicles.
His consultation is focused on providing the reputable and transparent infrastructure necessary to attracting and marketing to investors. Trevor has capital-saving strategic partnerships with the leading alternative investment service providers and professionals including hedge fund and private equity fund attorneys, auditors, administrators, custodians, compliance firms, marketers, capital raisers, IT/infrastructure professionals, and software providers.
Trevor works with start-up and emerging managers to bring their funds to fruition. His launch processes are efficient, dependable, and tailored to your specific needs.
You can contact Trevor at 1-631-252-5702 for a complimentary consultation. His experience and a handful of references can be found on his LinkedIn profile: www.linkedin.com/in/trevorlzeh.