You hear a lot of people these days lamenting about how “hard it is to raise capital for hedge funds.” To be sure, there is a lot of capital still flowing into hedge funds. (Even May’s loss-induced fall in industry-wide AUM belies new allocations of approximately $5 billion). But as hedge fund marketers from all but the biggest firms know, the money invariable flows from big investors to big funds. As the hedge fund industry matures and “institutionalizes,” the big become bigger while the rest fight for the scraps. Those scraps of smaller investments often come from high net worth investors who have historically fueled the growth of the industry, but now only account for 28% of new allocations.
That leaves the yeomen of Hedgistan in a tough spot. How do you raise capital from institutions that probably already know who you are and are tracking your performance via a myriad of industry databases? Furthermore, the institutional sales cycle is often so long, the salesperson may have left the firm before the money flows in. Like Jack Lemon and Alan Arkin in the cult-classic movie Glengarry Glen Ross, it’s hard for the hedge fund sales executive to adhere to the “ABC Principle” (“always be closing“) in this kind of environment.
A survey of 50 institutional investors by Preqin offers hope for hedge fund marketers. It turns out that institutional investors are trying to avoid you after all! In fact, 72% of respondents said they would consider investing in a hedge fund it had one rejected. And when they tell you they’re “monitoring you”, they may actually be telling the truth. According to the survey, 40% of institutional investors monitor 50 or more hedge funds on a regular basis.
While recommendations from investment consulting firms are critical for endowments and foundations, the survey found that direct sales contact worked best when trying to get in front of family offices or funds of funds. Indeed, many hedge fund marketers find that getting in front of a fund of fund analyst is a no-brainer since meting you is their job.
Here’s another finding that won’t surprise you hedge fund marketers out there: Preqin reports that US investors rely more heavily on consultants than their European and Asian counterparts. Those who point a finger at Europeans’ reliance on social networks (vs. hard data) as an explanation to why they were stung hardest by Madoff won’t be surprised by this finding:
“European investors are far more likely to prefer to be marketed directly – either by email or phone calls from hedge fund sales teams or through the general network or conference scene.”
(Note also that some of the world’s largest hedge fund conferences and conference firms are based in Europe.)
The bottom line for hedge fund marketers? Email first, wait for a call back. If nothing, roll the dice and make the call yourself. Only 41% of sales leads will wish you would go away. (below: 36% “Don’t call us we’ll call you” plus 5% “don’t call us – period”)
Marketing a single fund, manager or strategy to institutional investors is a new phenomenon. In the long-only institutional asset management industry, marketers generally represent a firm’s entire suite of products – allowing them to engage in a conversation with prospects. But in Hedgistan, what you see if what you get (particularly for the masses of one-trick ponies that make up the lion’s share of funds). This means there are precious few tools at the institutional salesperson’s disposal when it comes to on-going relationship management.
Emails, phone calls, face-to-face meetings – at least if you can’t always be closing, you can at least always be communicating.