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Seed Money, Bond Management, and Private Label Funds

By Markus Hill, Independent Asset Management Consultant

(Published only in German, www.finanzen.net)

Shortage Factor Performance, Communication, and Network

“Our wealth is based on communication” (Matt White Ridley, author). This thought also

holds true for success and failures in light of seed money search, including the area of bond

management. Good content or good performance in connection with good communication and

smart, systematic networking often serves as the basis for successful efforts to find initial

investors for pension fund concepts. This situation is frequently met with astonishment after

some fund initiators have to dismiss their project after long, unsuccessful placement efforts.

Of course, things can be done differently.

Private Label Fund Launch: It’s not “Sorcery”!

Many pension fund managers do, in a systematic or unsystematic way, deem the contacting of

investment companies such as Universal Investment, IP Concpet, Alceda, or others as a first

step of action after the identification of seemingly unique fund concepts by the fund initiator

(fund advisor, asset manager, family office, etc.). What are typical conversation subjects in

this case? Fund concepts, investment regulations, possible fund naming, necessary contract

arrangements, sale strategies or conception (which is often a weak point), and many other

matters must be discussed in order to bring the project to life. The end result should be a clean

execution and an administration based on viable marketing concepts. An exemption to this is

the matter of seed money search: if there are no real “fans” of the pension fund expert’s

concept, all future considerations won’t make it passed the dry run stage. There is no fund.

The alternative scenario: The fund has few millions and eventually disappears with time.

Another frequent case: The concept is well thought out, the network is in place, the

communication is great, and the investors get on board quickly. Add a combination of good

resources in the right market phase, and you have a successful fund initiation.

Possible Stumbling Blocks and Factors of Success

Asking members of the German Association of Independent Asset Managers (“Verband

unabhängiger Vermögensverwalter Deutschland e.V.”) about their experience with fund

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initiation and the factor seed money search holds surprising results: the failure of projects

during initial investor search are due to a lack of sustainable investor contacts. A network for

so-called road shows was not in place. Equally self critical is the belated admission that one’s

own expertise did not uphold to the scrutinizing by different institutional investors, which

were considered for initial investment (“seeding”). Pension fund expertise was not, or at least

only partially, considered or the declared performance of other products and mandates of the

fund initiator did not convince. Conversely, successful seed money searchers have a good

network (developed internally through long-term relationships or through external support), a

well thought out communication strategy, and, naturally, excellent bond management

expertise alongside good performance allocation through initial seed investors. Experts of the

branch would say: Value rises to the surface sooner or later. For many fundraisers, this is a

long-term element for successful fund initiation.

Asset Management and Economics

In a sum: Average to “bad” bond managers often invest unnecessary amounts of time in fund

initiation projects, since communication and network typically can’t compensate these factors

in the long run. In retrospect, bad fund concepts cause large corporations in the area of asset

management to be punished by stagnating resources flow or runoff, despite initial seed money

cash. The due diligence of institutional seed money investors seems unforgiving and

economically rightful—high portfolio manger quality presents itself in form of long-lasting

good performance quality and thus serves the universal public. Why should these insights

from the mainstream retail and service provider industry not be valid in the asset management

field?

Strategic Shortage: Performance, Communication, Network

In the long run, the market entry of new fund concepts in the area of pension funds is

regulated by the investors’ side during seed money search. (Frequently raised question: What

is truly new in the asset management field?) Small to medium-sized, corporate-independent

fund advisors typically act as so-called hidden champions in the successful middle class area:

focus on core competence (pension fund expertise), long term and intensive engagement with

client needs (investors) and the dismissal of opportunistic “jumping around,” in conjunction

with above-average product and/or service provider quality (performance). What is often

forgotten though is the fact that investment funds with high transparency are some of the few

products on the market with a right to return on a day’s notice; the cancellation deadline for

institutional mandates can be very short. The ideal way of seed money search may present

itself as follows: top quality (performance, track record) in combination with stress resistant

network for initial investor approach and knack for exchanging ideas. Do good and make

known your actions—the inquiry about seed money to investors can then become an act of joy

and may deliver added value as well. In other words: not inquiring with the investor results in

a missed chance for a promising investment that can lead to additional incentives. If the fund

advisor offers attractive content, he or she will be seen as enrichment (“added value”) by the

potential seed investor. Alternatively, inquiries based on average or bad concepts are seen as

nuisance or “time-waster.”

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Outlook

Perhaps, in the long run, an in-depth dialogue between fund management and investors may

lead to the early dismissal of unsustainable pension fund concepts after their efficient

examination. Excellent manager quality and perhaps a potential to optimize in terms of

network building and expansion often characterize sustainable fund concepts. The frequency

of inquiries, their method and sustainability seem improvable. Matters that are not driven by

marketing or PR in the asset management field but could be turned into success factors: as a

general rule, the development of good talent in a specific area can bring much joy—in a way,

the nursery element of the asset management industry!

Feedback, additional thoughts, experience or any kind of dialogue on such context is

most welcome; please contact info@markus-hill.com or Mary Daute (Asst. Manager).

Phone: + 49 17 66 33 66 094

Markus Hill

Markus Hill (MSc in Economics) is an independent asset management consultant based in

Frankfurt, Germany Professional experience includes SEB Bank and Credit Suisse Asset

Management. In addition, he worked as head of sales and PR for a German fund boutique.

Since 2005 he specialized in the management of mandates, sales, marketing, and PR

(consulting, "introducing"). Markus is also involved in selecting themes in the specialist areas

of target funds with a multi-management aspect, fund boutiques and mutual funds for

institutional investors (product scouting, fund selection). Furthermore he is actively engaged

in cooperation with the market-leading Private Label Funds/Master KAG in Germany

(Universal-Investment) promoting the idea of independent asset management and was the Co-

Initiator of the first all-German Consultant survey in 2005 and the first "UCITS-survey" in

2003. Market entry into Germany, behavior of fund selectors and fund providers in German

asset management industry are often discussed by him, e.g. in his asset-management-

publication MH-Focus. Through many articles, columns and presentations (national and

international) he has become a highly recognized expert in the German asset management

industry. "Industry multiplier" is a term often used by journalists and clients to describe his

style and personality. (Markus Hill/ MH Services assigned in the role of Media Partner

for: UCITS Alternatives Conference in Zürich, September 2011)

Markus Hill MH Services

email: info@markus-hill.com

website: www.markus-hill.com

phone: 0049 (0) 69 280 714 mobile: 0049 (0) 163 4616 179