06.08.2015 Other Voices:

The five inexcusable excuses for why you can't raise assets

By: Andre Boreas, CEO Quadsight Partners

…the private equity fundraising market is still in a state of bifurcation. The largest, brand-name managers are receiving the majority of investor commitments, with smaller managers – particularly first-time funds – finding it difficult to raise capital.

Preqin - July 13th, 2014

…the 500 largest hedge fund managers control 90 per cent of industry assets, with the 505 hedge fund managers that run at least $1bn responsible for $2.39tn of the industry’s $2.66tn total assets.

Hedgeweek – January 20th, 2015

Raising assets is hard. As the big firms get bigger and with so many funds scrambling to get noticed by the investor community, it’s easy to lose sight of what the fundamental challenges are and, in turn, recognize what is and what isn’t working. So after my 15+ years in the institutional investment industry, these are some of the rationales I have heard as to why a manager can’t raise assets.

#1: "We’ve never actively marketed our fund"

I have heard this many times in my career. I suspect this is more about not knowing how to market a fund and less about actually trying to. It’s the classic 'what came first the chicken or egg’ conundrum: investors want to see a three year track record with $300 mil AUM – but how do you get $300 mil AUM if you can’t already show it? The classic process is to beg, borrow, steal (well, maybe not steal) from friends and family, move up to the family office space, try to land a small foundation or endowment and hopefully get to the magic number where you can get on the radar of consultants and larger institutions. Maybe you’ve used a third-party marketer or placement agent along the way. So yes, you have been actively marketing your fund, but maybe not in the most efficient or effective way. There ARE some actionable strategies a manager can take to get noticed in the investor community and get that pipeline filled:

Be a subject matter expert. This is the easiest and fastest way to gain credibility. Articles, speaking engagements, videos are all important ways to demonstrate expertise. Besides, who doesn’t like to be asked what their opinion is on something?

Branding. Although a much used term, many misunderstand what branding actually is. Branding represents the definition of who you are, what you do and what you believe in. Successful managers embrace the concept of cultivating their brand and use it to their advantage.

Believe in the power of digital marketing, particularly Linkedin. It’s not going away, and can be an effective tool in lead generation as more managers are using it.

#2. "My fund returned 794% last year. I don’t need to market my fund. The performance speaks for itself."

That might have worked back in 2006. Not anymore. (Although 794% is pretty good and would probably at least get you noticed. Maybe by the SEC though). To attract assets, particularly institutional assets,

you must be a "complete" firm. The two guys and the dog in the garage who banged out terrific performance and were able to raise assets no longer exists. Being a complete firm means having best-in-class operations, technology, compliance, client service and, yes, marketing and business development.

#3. "Investors are stupid."

The investor community has come a long way in the past 10 years to better understand private capital and hedged strategies. It can be a steep learning curve, but there are many bright investment people running foundations, endowments, family offices and yes, even consultants/advisors. That being said, most allocators are generalists and are still one step removed from the actual trading desks and therefore, not as tuned into the comings and goings of a manager’s respective market. Education about your particular market and strategy can go a long way to a successful engagement with a prospect.

#4. "Investors are happy with the transparency I provide them."

A recent study by Northern Trust found that while the vast majority of managers (90%) thought they were providing their investors with the appropriate level of transparency, 55% of investors were not satisfied with the information they were receiving from their managers. Clearly there is a disconnect somewhere.

Institutional investors no longer just care about performance. Risk, portfolio composition, correlations, portfolio company performance – all key considerations not just during due diligence, but post-monitoring as well. All else being equal, what you share with investors (and in many cases how) can be a competitive advantage – or disadvantage.

#5. We’re solely focused on institutional assets. Retail investors are a pain.

Yes, retail is a pain. It’s also growing by leaps and bounds. Institutional allocations are slowing given the substantial capital already put to use over the past few years. Liquid alternatives on the other hand, are demonstrating eye-popping growth, having experienced a 40% compounded annual growth rate since 2008 according to a Deutsche Bank survey. Inflows in 2015 are expected to reach $49 billion compared to $34 billion last year. While not all strategies lend themselves to a liquid structure, there is a substantial opportunity set here for those that are prepared to accept the challenges and opportunities in these vehicles. It goes without saying that a very different marketing strategy and distribution model will be required for managers to succeed in this space. Retail money is green too – even if it comes in ones and fives instead of tens and twenties.

For many years, "spray and pray", mass emailing of fact sheets to prospective investors with the hope that someone would take notice, was considered the most effective way to market a fund. That tactic no longer works. In a hyper-competitive capital raising environment, managers need to embrace new engagement strategies. The "fact sheet" is not going away, but if that’s all you’re using, you’re showing up to the gun fight with a knife.

For more thoughts on putting together a comprehensive marketing plan to effectively engage the investor

community, please review our latest thoughts at:

http://www.slideshare.net/AndreBoreas/seven-rules-for-growing-assets-for-alternative-investment-

managers

Andre Boreas is the CEO of Quadsight Partners LLC, a marketing and investor communications firm with a

singular focus on the investment industry. He has over 15+ years’ experience as an institutional investor,

product marketer and portfolio manager. More information can be found at: www.quadsight.com