On October 6 I appeared on a panel to discuss the topic of “Pitching Investors.” Joining me on the Dias was Jim Marrone, CEO of Cap Z. a noted hedge fund seeder, Rachel Minard, President of Cogo Wolf, a hybrid FOF, John Pagli from WR investments – a fund of managed accounts and Bruce Frumerman from Frumerman and Nemeth, a hedge fund marketing consultant.
The panel was well attended, a testament to the challenging capital raising environment that we’re currently in.
An overarching theme was the notion that hedge fund marketing has to become more professional and more systematic. This starts with investing in a professional appearance – through logos, design templates and websites to being able to clearly articulate what you do? why invest? why invest now? To paraphrase one panelist, “Don’t expect investors to care.”
Bruce reminded the audience that there are actually two types of marketing – sales marketing and communications marketing. One is involved in the process of targeting, approach, meetings, follow-up and the related materials that a hedge fund should use at each step of the process – Bruce has identified 12. Whereas communications marketing focuses on clearly articulating an edge, information advantage and risk management.
We held a cap-intro event last week and that was one of the overwhelming comments we received from our investors. As a manager you should be able to clearly explain what you do, why you do it better, how you manage risk and how you execute your strategy.
Another theme that I wanted to communicate was that the capital raising environment from 2005-06 is in the rear view mirror and is never coming back. Everyone has a friend that launched and raised money seemingly effortlessly, but regardless whether that was true or not, those days are gone forever. Every fund is open to new investment which presents a severe capital raising challenge to new funds….especially as funds recapture their high-water marks and begin to drive more resources into the capital raising effort.
I have frequently heard the refrain from established funds, “we’re at $x hundred million and just hired our first marketing person.” So the established funds are getting smarter, adding resources, taking better care of their existing investors, making it much tougher sledding for new funds.
The panel discussed the notion that while performance is important – it is not the sole arbiter of success. The better mousetrap does not always win. It is the articulation of the source of those returns and breadth of marketing effort that will determine success.
Finally, early stage managers who claim access to a large network and friends in the industry would be reminded that friends are great. Friends that invest with you are much better and should form the core of your initial capital. If you worked at another fund and were successful, it is the expectation that you should be able to attract capital from investors that have invested with you in the past.