The best advertising is mouth to mouth. Stimulate that. Make a system to raise money, like you made a trading system. Network with people. Hire 'relationship' builders. Look for the long term commitment with your clients. Always 'under' promise and 'over' deliver. Finding money the first year is not so hard. Keep finding it over the years that come is the hardest part. The reason for this is because you do not build enough relationships with your clients. Publishing, advertising, websites are a poor way to raise capital. One to one contacts with referred people from your existing clients is the best way to raise capital. If you do not have the time do this, hire somebody. It will cost you less then 'advertising' and it will be more productive.
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Money Mangers Marketing
- Thread starter LongView
- Start date
Hmm, I guess I have been busy trading so I missed this thread a bit.
Somebody mentioned that institutions are trying to fit your fund / CTA into a "box", that's exactly what they do. And in a way, if you were in their shoes, managing a few billion, and only allocating maybe 1-4% of their managed assets into "alternative investment", then you will see why they are trying to fit your strategy into a box. Not to sound arrogant or anything, but I have had to turn down a few offers (from HF incubators, and large funds wanting "front funds") for me to manage money (I am happy with trading with my own capital, and I have been with a few hedge funds before, so I know the routine fairly well). For a fund to get serious consideration in front of an institution, it has to have both a good "presentable" strategy and a decent track record.
Most small funds I have seen takes very little time explaining their strategy from an institutional sense, the managers seems to be caught between "not wanting to reveal too much" and "my strategy is very special". Both statements are not entirely true. From what I have seen, 99% of all strategies fit into a standard box or two, take time to explain your strategy in standard terms, very very rarely are there any "secret sauce". Especially if the manager was not with a top-tier firm before, the institution (or even HNW FOs!) tend to be suspicious of claims of "proprietary instrument selection process that produce high portable alpha". The "secret sauce", if anything, comes with tuning and experience. Two, very few small funds have realistic sense of risk management, they tend to say "we don't allocate more than 5-10% of our capital in one trade", and call that risk management, it is not, at least describe some standard scenarios then. Will the fund be using a risk system, does it do product / asset class correlation analysis? Does it do periodic shock scenario analysis? How often? Most good fund presentations devote at least 20-30% of the presentation to risk management.
Look at things from the institutional investor's perspective (say a pension fund), they are only allowed to invest a small % (1-4%) of their AUM into "alternative investments". And these guys have to explain their manager selections to their own investment committee (and these committee members have never seen an option, let alone more complex derivatives), so think about the story they have to tell, and the portfolio (basket) of funds they have selected. So it is not just a matter of chasing alpha, it is also about spreading out the investments across the different investment strategies, so that in the event of a market turn, the lack of correlation would protect the investment itself. In fact, pension funds and FoFs have taken to buy "hedge fund derivatives (i.e., fund options and protective puts) to further protect the investment. Disclaimer, I do provide some informal advisory stuff for two FoFs, so I guess I have the inside view, I guess.
Just my $0.02.
Somebody mentioned that institutions are trying to fit your fund / CTA into a "box", that's exactly what they do. And in a way, if you were in their shoes, managing a few billion, and only allocating maybe 1-4% of their managed assets into "alternative investment", then you will see why they are trying to fit your strategy into a box. Not to sound arrogant or anything, but I have had to turn down a few offers (from HF incubators, and large funds wanting "front funds") for me to manage money (I am happy with trading with my own capital, and I have been with a few hedge funds before, so I know the routine fairly well). For a fund to get serious consideration in front of an institution, it has to have both a good "presentable" strategy and a decent track record.
Most small funds I have seen takes very little time explaining their strategy from an institutional sense, the managers seems to be caught between "not wanting to reveal too much" and "my strategy is very special". Both statements are not entirely true. From what I have seen, 99% of all strategies fit into a standard box or two, take time to explain your strategy in standard terms, very very rarely are there any "secret sauce". Especially if the manager was not with a top-tier firm before, the institution (or even HNW FOs!) tend to be suspicious of claims of "proprietary instrument selection process that produce high portable alpha". The "secret sauce", if anything, comes with tuning and experience. Two, very few small funds have realistic sense of risk management, they tend to say "we don't allocate more than 5-10% of our capital in one trade", and call that risk management, it is not, at least describe some standard scenarios then. Will the fund be using a risk system, does it do product / asset class correlation analysis? Does it do periodic shock scenario analysis? How often? Most good fund presentations devote at least 20-30% of the presentation to risk management.
Look at things from the institutional investor's perspective (say a pension fund), they are only allowed to invest a small % (1-4%) of their AUM into "alternative investments". And these guys have to explain their manager selections to their own investment committee (and these committee members have never seen an option, let alone more complex derivatives), so think about the story they have to tell, and the portfolio (basket) of funds they have selected. So it is not just a matter of chasing alpha, it is also about spreading out the investments across the different investment strategies, so that in the event of a market turn, the lack of correlation would protect the investment itself. In fact, pension funds and FoFs have taken to buy "hedge fund derivatives (i.e., fund options and protective puts) to further protect the investment. Disclaimer, I do provide some informal advisory stuff for two FoFs, so I guess I have the inside view, I guess.
Just my $0.02.
As always rufus-4000 provides us much wisdom. Many Thanks to our resident wise-man!
Good points on the need to explain the strategy in simple clear terms and to pay more emphasis on risk managment.
Someone once told me that if you can not explain to a lay-man on the street in simple English using no more than 3-4 sentences who you trade, make money and manage risk, you've not done a good job as a manger resnting your strategy and worse still this may be indicative that you don't trly have aviable/valid strategy.
A question - actually a few questions for you rufus on my biggest dilemma:
How do you grow from the 0 - 2M level to above 10M?
Who do you target during this embryoinic stage?
How do you explain larger than expected drawdowns especially as drawdowns (and returns) tend to be magnified with low aset bases?
Do Fof/HNW investors truly have HARD drawdown levels. That is are you automatically deleted from the sample space if your drawdown exceeds 15, 20, 25 or 30%?
Or can you justify a larger than average drawdown with large returns in excess of say 40-60% or do large drawdowns penalize you permanenty regardless of your upside return.
Thanks in advance for sharing.
P.S. Why did you turn down money from the incubators, FoF and large funds seeking front-funds
P.P.. what kind o fterms do you see these incubators/large funds offering to new/small funds? In exchange what size of capital allocation?
Thanks again
Good points on the need to explain the strategy in simple clear terms and to pay more emphasis on risk managment.
Someone once told me that if you can not explain to a lay-man on the street in simple English using no more than 3-4 sentences who you trade, make money and manage risk, you've not done a good job as a manger resnting your strategy and worse still this may be indicative that you don't trly have aviable/valid strategy.
A question - actually a few questions for you rufus on my biggest dilemma:
How do you grow from the 0 - 2M level to above 10M?
Who do you target during this embryoinic stage?
How do you explain larger than expected drawdowns especially as drawdowns (and returns) tend to be magnified with low aset bases?
Do Fof/HNW investors truly have HARD drawdown levels. That is are you automatically deleted from the sample space if your drawdown exceeds 15, 20, 25 or 30%?
Or can you justify a larger than average drawdown with large returns in excess of say 40-60% or do large drawdowns penalize you permanenty regardless of your upside return.
Thanks in advance for sharing.
P.S. Why did you turn down money from the incubators, FoF and large funds seeking front-funds
P.P.. what kind o fterms do you see these incubators/large funds offering to new/small funds? In exchange what size of capital allocation?
Thanks again
At between 2-4M to 10M, a fund is in an interesting phase. The fund is not large enough to warrant the attention of a capital introduction service like ones in a large ibank. Like somebody else said in this thread, get introductions first, the money will more than likely coming from HNW individuals (not even the ones with family offices). There are plenty of people walking around with 5-10M assets, and they can often provide interesting introductions. Secondly, if you can get a fund raiser that focuses not in the major money centers, they would have an easier time raising money. I know an Italy based banker that raised $38M in the span of 8-10 weeks for a fund.
Introductions can come from some very strange places, from fund administrators, lawyers, even headhunters. So it pays to get on the client list of some of the top-tier firms, for instance, Sadis & Goldberg, or Schultz Roth and Zabel for law firm. Their internal rolodex for large funds that occasionally looking at throwing a few bucks at "seed stage" funds is very impressive. Also, Fortis, Spectrum for fund administration. Sure, you will pay 20-30-40k for their services, but think of them as your link to rest of the fund industry. Interesting story later.
But back to basics, the fund will need a good and polished model / risk / structure / people presentation. And the manager should be able to do a "3-5 min egg timer pitch". Talking about what makes you different, but talk in the context of what they know, but make sure it doesn't sound arrogant. For instance, I know a systematic trading fund once described informally their strategy as "picking up crumbs that RenTech and DE Shaw deemed too small", the proceed to dissect a standard trade (one that say DE Show would do), and talk about how they can pick up some profit through the resultant market impact, but manage their impact and risk, and the FoF was extremely impressed as to their awareness of the business in general. Keep in mind the FoF probably has money with a much larger fund that does those larger type of strategies, so he can verify the smaller fund's claims quite easily. Naturally it is an art form to keep the presentation interesting and yet not give away the "secret sauce".
In terms of drawdowns, don't worry about painting a "good" picture, as long as you demonstrate that you have learned from the drawdown, and have incorporate the necessary scenarios in your risk management, most FoFs I know would let it go. However, most actively managed FoFs (and some FOs) I know I have hard set internal drawdown targets, the moment a fund crosses below the required level, the manager would be replaced (since the drawdown would be inconsistent with the internal risk parameters set by the institution). There are even very active FoFs (and there are more and more of them nowadays), that aim to replace 10-20% of their managers annually. So being fired is not necessarily a bad thing. The key is to present a pragmatic risk model of the fund's strategy, and then stick to that risk profile.
Back to myself, I once got a call from a hedge fund accountant I know, we had a bit of small talk about the general state of the biz, who is doing well, etc. Before I know it, I got a call from a manager of a $3B fund (who was the accountant's old boss) asking me to have a drink with him. We sat down at the bar, and just shot the breeze for a while, talking about the colorful people that we both know (good and bad, etc). He then asked me about my strategy, which I gave a description that is not different from the one I talk about here on ET, and he just turned to me, "So, we are looking for good managers to invest $10-15M each into. I think you will be a perfect fit". I just laughed, "I didn't know that was auditioning for a job. I would have put on a power suit.". Of course I turned him down, but I promised him that I would help to review (if he want) any manager that he is interested in. The reason is that I am trading as an exchange member (individual seat holder), which means that any money I take in would have to be reported. I also have the strategies that are inherently not that scalable (if people give me $50M, I wouldn't know what to do with it), my profitability comes from leverage. Therefore self-funding so far I am quite happy with.
Introductions can come from some very strange places, from fund administrators, lawyers, even headhunters. So it pays to get on the client list of some of the top-tier firms, for instance, Sadis & Goldberg, or Schultz Roth and Zabel for law firm. Their internal rolodex for large funds that occasionally looking at throwing a few bucks at "seed stage" funds is very impressive. Also, Fortis, Spectrum for fund administration. Sure, you will pay 20-30-40k for their services, but think of them as your link to rest of the fund industry. Interesting story later.
But back to basics, the fund will need a good and polished model / risk / structure / people presentation. And the manager should be able to do a "3-5 min egg timer pitch". Talking about what makes you different, but talk in the context of what they know, but make sure it doesn't sound arrogant. For instance, I know a systematic trading fund once described informally their strategy as "picking up crumbs that RenTech and DE Shaw deemed too small", the proceed to dissect a standard trade (one that say DE Show would do), and talk about how they can pick up some profit through the resultant market impact, but manage their impact and risk, and the FoF was extremely impressed as to their awareness of the business in general. Keep in mind the FoF probably has money with a much larger fund that does those larger type of strategies, so he can verify the smaller fund's claims quite easily. Naturally it is an art form to keep the presentation interesting and yet not give away the "secret sauce".
In terms of drawdowns, don't worry about painting a "good" picture, as long as you demonstrate that you have learned from the drawdown, and have incorporate the necessary scenarios in your risk management, most FoFs I know would let it go. However, most actively managed FoFs (and some FOs) I know I have hard set internal drawdown targets, the moment a fund crosses below the required level, the manager would be replaced (since the drawdown would be inconsistent with the internal risk parameters set by the institution). There are even very active FoFs (and there are more and more of them nowadays), that aim to replace 10-20% of their managers annually. So being fired is not necessarily a bad thing. The key is to present a pragmatic risk model of the fund's strategy, and then stick to that risk profile.
Back to myself, I once got a call from a hedge fund accountant I know, we had a bit of small talk about the general state of the biz, who is doing well, etc. Before I know it, I got a call from a manager of a $3B fund (who was the accountant's old boss) asking me to have a drink with him. We sat down at the bar, and just shot the breeze for a while, talking about the colorful people that we both know (good and bad, etc). He then asked me about my strategy, which I gave a description that is not different from the one I talk about here on ET, and he just turned to me, "So, we are looking for good managers to invest $10-15M each into. I think you will be a perfect fit". I just laughed, "I didn't know that was auditioning for a job. I would have put on a power suit.". Of course I turned him down, but I promised him that I would help to review (if he want) any manager that he is interested in. The reason is that I am trading as an exchange member (individual seat holder), which means that any money I take in would have to be reported. I also have the strategies that are inherently not that scalable (if people give me $50M, I wouldn't know what to do with it), my profitability comes from leverage. Therefore self-funding so far I am quite happy with.
Quote from CPTrader:
...
Do Fof/HNW investors truly have HARD drawdown levels. That is are you automatically deleted from the sample space if your drawdown exceeds 15, 20, 25 or 30%?
"Serious investors wanted. I find the properties, you fund the properties. Profits split 50/50. $15k-$80k per deal. Please call..."
There are 3 ads like this in the Sunday paper where I live. There are ads like this every Sunday for that matter. Just replace the word properties with equity/option/future of your choice and it becomes illegal per the SEC? I've never understood why the above ad is legal and yet there are all sorts of restrictions on people trying to raise money to invest in equities/options/futures. Is there a simple explanation I am missing?
ryan
There are 3 ads like this in the Sunday paper where I live. There are ads like this every Sunday for that matter. Just replace the word properties with equity/option/future of your choice and it becomes illegal per the SEC? I've never understood why the above ad is legal and yet there are all sorts of restrictions on people trying to raise money to invest in equities/options/futures. Is there a simple explanation I am missing?
ryan
<b>"Secondly, if you can get a fund raiser that focuses not in the major money centers, they would have an easier time raising money. I know an Italy based banker that raised $38M in the span of 8-10 weeks for a fund. "</b>
This is an important aspect. Here in Colorado I am starting a RIA that focuses on my strategies which include short-term oversold strats that focus on options and small-cap equity trading. All my prospects are HNW but they don't fit the HNW mold and part of that is that they live in small towns in rural America.
In my opinion if you are going to HNW individuals outside of the big cities and outside of the standard retired corporate exec. then there is money to be found. Perhaps not 100mm but certainly a few million from good people.
This is an important aspect. Here in Colorado I am starting a RIA that focuses on my strategies which include short-term oversold strats that focus on options and small-cap equity trading. All my prospects are HNW but they don't fit the HNW mold and part of that is that they live in small towns in rural America.
In my opinion if you are going to HNW individuals outside of the big cities and outside of the standard retired corporate exec. then there is money to be found. Perhaps not 100mm but certainly a few million from good people.
Quote from NTB:
How do you find those HNWIs in small rural towns? I agree with you. Also, Italy has humongous amounts of money flowing into hedge funds. I wish I could hook up with an Italy-based marketer.
Again, introduction is the name of the game here. I am not a money manager (and don't intend to be in the near future), but the way that I know that would probably work would be link with private wealth management for a private bank, they tend to have contacts in the rural towns. As for Italian money, the fund I know got introduction to an ex-american ibanker living over there (and married the daughter of some italian family), and his has some great connections to money over there. I don't know, it is not always about the "deal", the personalities has to work, it helps to have some backgrounds, etc.
As for myself, I have had these weird runs with money over the years, once on my way back from Taiwan, I got into my seat, started to nurse a single malt hoping to get to sleep, a couple of newlyweds from Idaho sat behind me, so I struck up a conversation. As it turned out, his father is a former potato farmer (no surprise there), that luck out as one of the earliest investors in Novell, now the family is worth at least 50M. It was funny, I promised to pay them a visit, but yet still haven't got there, so we are just in the Xmas card category. Once in a while, I give them free financial advice, it is surprising how unsophisticated they are (>20M in muni bonds!), and the son is interested in sophoisticated vehicles. That was interesting.