Fund of hedge funds marketing

[Hannerhan]

I run the asset management operation of a small multi-family office, and late last year we started investing in hedge funds for the first time. In the end we have a fund-of-funds where we have pooled client and employee money, and now that it's built and scalable, I'd like to add some outside assets if that can be done without a tremendous amount of work. I think the offering and fees are very attractive compared with similar stand-alone products.

Anyone here in the hedge fund or fund of funds marketing business? Other than reaching out to high net worth people I know, I'm not coming up with a whole lot of brilliant ideas.

 

[Concordia]

I used to be at a large consulting firm that heard from FOFs all day. Pretty depressing-- they all think they're fantastic, and most are mediocre, risky, and overpriced. So if you've really put together something good you might be able to move it.

I don't know so much about the marketplace for these things right now. I gather that there are still too many products and a lot of clients who are no longer optimistic. So it's not an easy time to start out on this project.

You could try some of the investment consultants that are independent and therefore don't offer their own FOFs. Or if you can brand it effectively, there might be other sorts of multi-family offices that would be willing to latch on.

 

[Hannerhan]



I used to be at a large consulting firm that heard from FOFs all day. Pretty depressing-- they all think they're fantastic, and most are mediocre, risky, and overpriced. So if you've really put together something good you might be able to move it.
I don't know so much about the marketplace for these things right now. I gather that there are still too many products and a lot of clients who are no longer optimistic. So it's not an easy time to start out on this project.
You could try some of the investment consultants that are independent and therefore don't offer their own FOFs. Or if you can brand it effectively, there might be other sorts of multi-family offices that would be willing to latch on.

Thanks for the color.

My quick thought on most FOF's, and frankly on the consultants who are now taking a lot of their business, is that they spend way too much time focusing on which funds are "safe" and not enough finding managers who are going to make them money. My philosophy is that you have to find younger managers and you have to be involved in inefficient/niche markets where the outsized opportunities still actually exist. The last guy who I'd pay 2/20 to nowadays is the $5+ billion long/short equity fund or credit fund whose manager is worth $1 billion and hangs out in Montauk all Summer. And I think 95% of the FOF's are invested with exactly these managers. Lastly, it seems to me that FOF's strive so much for diversity that they diversify themselves right of alpha...when you have 40 managers and 20 strategies, I just don't think it's possible to really outperform.

 

[TC11201]

If you have access to HNW affiliation organizations (like Family Office Exchange (FOX), Institute for Private Investors (IPI), Family Office Association (FOA), Ask The Circle, Tiger 21, etc.), they often have some sort of a forum for allowing members to pitch / present investment ideas to the other members. Just went through many months of presenting to those groups (among others) to raise my own very specialized fund. Found that the pros to those organizations are 1) access to highly qualified investors, 2) explicit recognition that these fora were to exchange investment ideas / products. Cons are that they deliberately limit what can be said and the audience, while qualified, can be comprised largely of hand sitters and browsers rather than people with an actual interest in investing (too many second and third-gen wealth holders scared to their wits about losing daddy's or granddaddy's money to actually make a decision). That said, if you get one, it's all worth it.

We had more success with the unglamorous shoe-leather work of reaching out to friends and then friends of friends, etc., etc. Once you have one evangelist, often, you'll find a number of other friends latching on - really takes one catalyst to make it work.

You could also try to get onto the platforms at some of the multi-family office admin / concierge groups (Genspring, for example). Tough without a track record, but there is often also a possibility that while you might not make it onto the platform, there might be a couple of families who take a private shine to the idea and move forward with you.

One caveat - it is a really rough market out there. As we've told a couple of reporters who have written about our fund, our biggest competition for capital was the mattress. While not shell-shocked like they were in 2009, the Euro-gyrations of Q4:11 certainly didn't help anyone's psyche...there is still an abundance of caution, not matter what you hear about interest in alternatives / real assets / alternative alternatives, etc.

Good luck and PM me if you think I can be of any help...

 

[Concordia]



Thanks for the color.
My quick thought on most FOF's, and frankly on the consultants who are now taking a lot of their business, is that they spend way too much time focusing on which funds are "safe" and not enough finding managers who are going to make them money. My philosophy is that you have to find younger managers and you have to be involved in inefficient/niche markets where the outsized opportunities still actually exist. The last guy who I'd pay 2/20 to nowadays is the $5+ billion long/short equity fund or credit fund whose manager is worth $1 billion and hangs out in Montauk all Summer. And I think 95% of the FOF's are invested with exactly these managers. Lastly, it seems to me that FOF's strive so much for diversity that they diversify themselves right of alpha...when you have 40 managers and 20 strategies, I just don't think it's possible to really outperform.

That's the mediocre part.

 

[BKJohnson]

I operate a consulting firm (not 3rd party marketing) that specializes in developing strategic and tactical marketing processes for alternative investment managers, FoFs and single managers within private equity and hedge funds. We are based in Austin. If you would like to have a brief chat regarding your efforts let me know. Also have you contacted the texas hedge fund association (www.texashfa.org) ?

 

[stevent]



Thanks for the color.
My quick thought on most FOF's, and frankly on the consultants who are now taking a lot of their business, is that they spend way too much time focusing on which funds are "safe" and not enough finding managers who are going to make them money. My philosophy is that you have to find younger managers and you have to be involved in inefficient/niche markets where the outsized opportunities still actually exist. The last guy who I'd pay 2/20 to nowadays is the $5+ billion long/short equity fund or credit fund whose manager is worth $1 billion and hangs out in Montauk all Summer. And I think 95% of the FOF's are invested with exactly these managers. Lastly, it seems to me that FOF's strive so much for diversity that they diversify themselves right of alpha...when you have 40 managers and 20 strategies, I just don't think it's possible to really outperform.

Yeah I wouldn't really try to get into most FOFs, they just don't really perform. I'd focus on pooling a bit more money then investing in one or two funds that your company / team likes. Better to get the letters direct from the fund and be able to talk with them about how the money is being managed. 2/20 these days is still standard but why not go for highwater mark performance only? Sure you pay a bit more on earnings but they have more incentive to make you money as well

 

[NameBack]



Thanks for the color.
My quick thought on most FOF's, and frankly on the consultants who are now taking a lot of their business, is that they spend way too much time focusing on which funds are "safe" and not enough finding managers who are going to make them money. My philosophy is that you have to find younger managers and you have to be involved in inefficient/niche markets where the outsized opportunities still actually exist. The last guy who I'd pay 2/20 to nowadays is the $5+ billion long/short equity fund or credit fund whose manager is worth $1 billion and hangs out in Montauk all Summer. And I think 95% of the FOF's are invested with exactly these managers. Lastly, it seems to me that FOF's strive so much for diversity that they diversify themselves right of alpha...when you have 40 managers and 20 strategies, I just don't think it's possible to really outperform.

This is a great post!