Hedge Fund Investors Pull Back $11 Billion in October
In October, hedge funds investors pulled back more money than in the last two years. The diving stock market and investors fears about the current European sovereign debt problem led many hedge fund investors to withdraw from funds, totaling $11 billion in October according to recent data.
The redemptions represent just under 1% of assets in the industry, fund tracker Trim Tabs said in its report. The company released its findings based on 2,900 hedge funds. "Investors seem to be fed up with lackluster hedge fund returns," Trim Tabs said.
Indeed, the S&P 500 Index is up only 1% this year through the end of November, although the market posted big gains yesterday. For example, the Dow Jones Industrial Average is coming off its biggest one-day gain since March 23, 2009, fueled by news that a global effort to make it less costly for European banks to borrow U.S. dollars. The Dow has added 814 points over the past three sessions.
But a few days does not a rally make. Trim Tabs said funds of hedge funds shed $2.7 billion (1% of assets) in October. Hedge funds overall have taken in $103 billion since the start of 2010, while funds of funds have shed $20 billion.
Hedge fund assets, at $1.6 trillion at the end of November, are at their lowest since the beginning of 2010, "in part because of performance," Trim Tabs said. Source
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Free Hedge Fund Video on the Hedge Fund Industry in Japan
The following video was recorded for the Certified Hedge Fund Professional training program. In this video, recorded in Japan, I give my take on the regulations and taxes for hedge funds operating in Japan and how this country is positioned in the alternative investment industry. If you are reading this via RSS or email, click here to watch the video.
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Transcript for Japan Hedge Funds
Hello, this is Richard Wilson. I’m coming to you from Tokyo, Japan today. I just finished speaking at the Hedge Fund Congress in Tokyo downtown. And what I want to do is share with you an update just on family offices to family office wealth management industry and the hedge fund industry here in Asia. This summer I’ve been traveling around to Singapore, Hong Kong and Tokyo, Japan and I wanted to just share what I’ve learned about what’s going on in these areas.
First off, family offices aren’t really allowed in this very sense or the term in Japan due to regulations, so really what they have here is retail banking and you get more service basically if you’re a high-net-worth or ultra high-net-worth professional. What that means is that family offices in other areas are going faster than others would, because people in Japan don’t really have the type of service here. So family offices in Hong Kong, China and especially Singapore are growing very quickly, that’s what’s interesting about Singapore, is that just in the last year and a half over a million new people have moved to Singapore and it has grown from 4.2M up to over 5.5M people.
The amount of wealth there is enormous. It’s one of the richest cities in the word that has more billionaires per capita than any other place in the world. Also, 1 out of every 25 people in Singapore is a millionaire. Now, when it comes to the hedge fund industry, what I’ve been learning here is that if you’re going to start a hedge fund there’s so many regulations in Japan. Often times it can take 6, 8, 12 months to start a hedge fund. There’s a lot of red tape, whereas if you start a hedge fund in Hong Kong, your rent and your expenses are higher, your overhead is higher. It’s a little bit more expensive, where if you start a hedge fund in Singapore, you can get registered typically within 2 to 4 weeks to open up your fund for a third of the cost. What it might cost you in Hong Kong is a lot lesser in cost here in Tokyo. So the result is that a lot of people are going to Singapore.
When it comes to taxes, which affects both family offices and hedge funds, the tax rate here in Japan is around 40% and Hong Kong I’ve heard it’s around 16% and in Singapore I’ve heard it’s around 11% to 13%. So basically Singapore has the best tax situation and tax environment for both wealthy individuals and hedge fund managers. Hong Kong comes in second with higher taxes, around 16% but also higher cost of living than Singapore. And then Japan is sky high in terms of taxes. It’s pretty close to the United States.
So if you think about where to start a hedge fund, Singapore and Hong Kong have the least regulations and least expenses for getting started. They have lower expenses in operating than Tokyo and lower taxes. And because Singapore is the easiest to work in, the least regulation, the lowest taxes, there’s just this huge influx of assets and money coming to Singapore. I’ve heard Indonesia, Malaysia, New Zealand, even Australia, Japan and China, lots of people are going to Singapore. I imagine it’s going to keep on growing very quickly and that’s the number one lesson I’ve learned traveling here in Asia and speaking at a few conferences and meeting with lots of different wealth management firms and hedge fund managers is that Singapore is really becoming a huge hub for growth in the future.
Of course China, Hong Kong, Tokyo, all these other big cities and lots of further growth and emerging markets, as there are some other, I’ve heard they have huge markets already. I do think Singapore is going to be the head of where a lot of business is done in the future. So I hope you enjoyed this update on Asian hedge funds and family office wealth management industry here in Asia. I know it wasn’t really in depth. For those of you wondering how things worked over here or you’re looking to raise capital in this region or if you’re looking to start a hedge fund and you’re based in Asia or near Asia and you’re wondering where in Asia possibly to start your hedge fund, I hope this video helps you on your way and to give research on that topic.
Thanks for joining me. I’m Richard Wilson and we’ll see you again soon.
Tags: Hedge Fund Investing in Japan, Hedge Fund Investing, Hedge Funds Japan, hedge fund Japan, hedge fund managers in Japan, Japanese hedge funds, hedge funds in Japan, Japanese hedge funds
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Free Hedge Fund Video on the Hedge Fund Service Providers
The following video was recorded for the Certified Hedge Fund Professional training program. In this video, I talk about how important service providers are to hedge funds and how hedge fund managers can better assure that they are working with top tier service providers. If you are reading this via RSS or email, click here to watch the video.
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Transcript for Hedge Fund Service Providers
Hello, this is Richard Wilson and today we’re going to talk about the importance of service providers which I often refer to as business partners to your hedge fund business. Many people that we interviewed from my recent book, “The Hedge Fund Book” mentioned that they underestimated the importance of service providers when they started their fund. And I know funds that have gone out of business due to having a service provider who either stops offering the service or didn’t offer what was promised, and it could be an area that definitely can make or break your business.
So I just wanted to stress the importance of that and suggest that hedge fund managers should have a service provider Due Diligence Questionnaire that is constantly evolving just like an institutional consultant won’t invest their client’s money in a hedge which doesn’t meet some sort of initial checkbox mentality process. You should have the same system for your service providers to ensure that decision are being made based on industry friends, emotional decisions or based just on who has the best sales ability, so it’s different from who’s going to have the best functional support systems for your business.
So I think that having a -- just to start with a 2 to 3-page DDQ, a Due Diligence Questionnaire which ask them for contact details, for 3 or 4 referrals, which ask them about the experience of each of the team members that you will actually be working with not just the people who started the firm but the people who actually be coordinating with and who are actually be doing the work for your fund at that service provider. You should have all of their details up front. You should have numbers on how many current clients and past clients they have served in the investment industry and the hedge fund industry specifically. It would be much different working for mutual funds then suddenly switches their offer or for hedge funds that never done it before, you don’t want to be part of that learning curve. You can work with somebody at the same price who did 200 hedge funds last year for legal formation works.
So you should be very careful about that, what people say their experience is versus how specific is that really to what you need them to do for you. Next, you should also have some sort of process for checking the reputation of the firm, speak with their competitors, speak with other people in the industry, speak with other fund managers that you know. Some service providers are very responsive and provide great service, others are overwhelmed, others do the bait and switch and sell you with the high pedigree person and then you get a junior person who’s never done the work before actually completing the work.
So it’s important to have this DDQ in hand and make sure that you hire service providers consistently. And also make sure that there’s some written documentation of what was promised and that can be written into a contractor or a service later and just add some real transparency and long-term kind of systems planning for your hedge fund as a business. So if you ever step away from the business or the business grows in multiple areas, this process can be used by someone else on your team to consistently hire highly experienced service providers and partners whether you’re there to tell them what to ask or evaluate the situation this allows you to outsource this to someone else on your team.
So this is something that I consider kind of a best practice and this becomes very strong. It could be something you even show your potential investors that before you hire anyone, we take them through this 20-step or this 3-step process which includes the 20 point Due Diligence Questionnaire and that’s just like one of 20 things that you can mention in part of being an institutional quality hedge fun. So I hope this short talk on service providers and the importance of a DDQ for service providers helped. Thank you for joining us in this video and we’ll see you again soon. Thanks.
Tags: Hedge Fund Investing Best Practices, Hedge Fund Investing, Hedge Funds service providers, hedge fund services, hedge fund service provider, hedge funds service, hedge fund service, services for hedge funds
Free Hedge Fund Video on the Monaco Hedge Fund Industry
The following video was recorded for the Certified Hedge Fund Professional training program. In this video, I give you my take on the hedge fund industry in Monaco based on my travels to the city while serving as the Opening Day Chairman for the GAIM Conference. If you are reading this via RSS or email, click here to watch the video.
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Transcript for Hedge Funds in Monaco
Hello, this is Richard Wilson. I want to share with you a short video on the state of the hedge fund industry here in Monaco. I just got done speaking at the Game 2011 Hedge Fund Conference. It’s the biggest and oldest hedge fund conference in all of Europe. There’s about 800 people there, 300 investors, about 500 fund managers of different types and it’s a great conference. A lot of it is based on capital-raising to get an advice directly from investors. And I learned while meeting with family offices that are based here in Monaco and going to the conference and being here for a week, a lot about the cities. I just wanted to share with you what the hedge fund industry is like here in case you wanted to possibly move your hedge fund to Monaco or try to raise capital for Monaco. I thought it might be helpful just to share what my experience has been here in the city.
So first of, this is a hub in Europe for ultra-high net worth individuals. I say ultra-high net worth instead of high net worth because the cheapest studio condo here cost about 1.2 million Euros or about 1.6M, 1.7 million US dollars to buy and that’s a tiny, tiny little condo. So you have to have a lot of money to buy a place here. The result is that a lot of family offices, people who have sold businesses, people that run large multinational businesses and like I mentioned single family offices are based here because there is zero taxation or very little taxation based on how you’re classified by the Monaco government.
But most people pays Euro taxes or 5% taxes by living here, while in most other places you pay a lot higher taxes, like Switzerland. But Monaco is not part of the EU so they get to avoid the recent directive which came out, which affects EU hedge fund regulation, that’s another advantage for them. And I think the taxes across the world in first world countries are going to be raised and that places like this, Singapore, Switzerland, other tax haven areas are actually — you know going to greatly increase and people are going to realize they could run their fund or live in many places around the world as the world comes easier to move around in, to get more connected and these hubs are just going to grow more and more popular.
What I found out that’s surprising here is that although there’s not many hedge funds based here, there are just a lot of investors here and hedge funds loves to come here obviously because it’s so central in Europe and they can meet with investors so easily. From here you could easily get to Paris, you could easily get to Switzerland, you could easily get to Luxemburg or Italy obviously. It’s right next door to Italy. So it’s a pretty good location for being in when you’re capital raising, you know city targets.
A couple other interesting facts, is that Monaco is only 0.7 square miles. It’s the smallest city in the world except for Vatican City. Another thing that I didn’t know before I came here was that basically, since 1996 hedge funds have been focusing more on being based in Monaco but the main reason they have and opened up offices here is that their operational cost would way up. If you’re hiring somebody who has 5 years or 7 years in capital raising experience or risk management experience, their knowledge might be really valuable and your hedge fund might be making a lot of money, but you’re going to have to pay them twice as much as if you lived in a Geneva or Zurich or some other cities such London or even New York because that’s how much higher the real estate cost are here.
So the result is that lost of hedge funds come through the city, people come here every year for a Game obviously like I was this week. But it’s really more of an investor hub than an active hedge fund manager hub unless the hedge fund manager has already cashed out or has gotten to a huge size and they’re just here for a part of the year.
So I hope you enjoyed this video on Monaco. It’s a great place to come visit, great place for your business, great place if you’re looking to connect with investors and it’s a great place to come check out Game if you have time one year. Thanks for joining me. It’s Richard Wilson and we’ll see you again next time.
Tags: Hedge Fund Investing Best Practices, Hedge Fund Investing, Hedge Funds Monaco, Hedge Funds in Monaco, Hedge Funds Monaco industry, hedge fund managers in Monaco
The following video was recorded for the Certified Hedge Fund Professional training program. In this video, we examine some factors that might be holding your hedge fund back from its potential success. If you are reading this via RSS or email, click here to watch the video.
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Transcript for Hedge Fund Problems:
Hello, this is Richard Wilson and today we’re going to talk about something you can do to break past maybe a bottleneck that’s holding your hedge fund back. Basically, a while ago I wrote an article, the title was Forget about Contacting New Investors. And the reason I wrote that is that lots of people come to us looking to purchase investor databases or getting new strategies in capital raising and often times they already know the answer to what they need to do but they haven’t asked themselves any questions to figure out what that answer is. And it may seem illogical to forget about contacting new investors but if that’s not the bottleneck holding you back, if investors is not the thing slowing you down, you may want to figure out what the thing is that’s slowing you down and remove that roadblocks so then you can move forward faster and be more efficient with everything else that you’re doing.
For example, I use one system called the four why process and basically what you want to do is ask yourself questions related to your problem for a very specific continual questions until you find the answer. And usually one question is not enough, usually you have to ask it 3, 4, 5 times. But it’s called the four why tool. The first question could be, “Why don’t we manage a $100M in assets?” And the potential answer could be, “We’re not raising capital from wealth management firms like we had planned to.” And a next question might be why, “Why haven’t we done that?” The potential answer could be “That are marketing materials have not been brought up to par with competitors and they’re too light. And our investment process is poorly described.”
So you might ask yourself again, “Why is that?” And the answer could be, “We know that we should be paying a consultant or an in-house marketer to help with both marketing materials and generating relationships but we have not hired one.” “Why is that?” And the final answer could be something about “We do not have the profits available to hire a full-time marketer but we should get around and create a new system to share equity, grow relationships with third-party marketers or build a marketing related advisory board.”
So after 4 questions you get down to some pretty granular answers that point to possible solutions like a marketing related advisory board, growing relationships with a third-party marketer. You know sharing equity, to hire someone in-house and start training them. So that kind of breaks it down and what happens is you could get that answer from why don’t we manage $100M in assets but it’s not a direct link to when you break it down the more times you ask why, why, why, why? Then the answer presents itself as stated within the question that the answer becomes included within your question.
So that’s one tool that businesses have used to grow their business in every industry and you could have 20 factors which determine the growth of your hedge fund and just one of those 20 not performing well or not being as high quality as it should be can hold back your whole fund despite the performance of the other 19. So sometimes these types of questions can help zero in on that one thing that’s holding you back which you might not be able to see because you’re so close to the problem on a day to day basis. And that this is something that I think clients could use more often and I’ve used it within my own business and that it really does help zero in on the things that are holding you back.
So I hope this tool helps. It’s called the four why tool. And thanks, we’ll see you again soon.
(Note: you must meet certain investing requirements to invest in hedge funds and this video should not be interpreted as financial advice.)
Tags: Hedge Fund Investing Best Practices, Hedge Fund Investing, investing in hedge funds, how to invest in hedge funds, how to invest in a hedge fund, investing in hedge fund, investing hedge funds, hedge fund investments, hedge fund investing, Hedge Fund Problems, problems in hedge fund management, hedge fund managers, management best practices
The following video was recorded for the Certified Hedge Fund Professional training program. Investing in hedge funds is quite different from standard investments like stocks, bonds and mutual funds. In this video, I cover five warning signs that you should look out for while investing in hedge funds. If you are reading this via RSS or email, click here to watch the video.
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Transcript for Hedge Fund Investing Best Practices:
Hello, this is Richard Wilson. I’m coming to you from Nice, France today. I’m here recording some training videos for the hedge fund group. And today I want to talk to you about how I’ve been working with a single-family office from the United States and helping them develop criteria for identifying potential hedge fund managers to invest in.
So what I’d like to do is provide you with 5 kind of warning signs, very obvious things if you’ve been invested in hedge funds for a long time, but if you’re a family office or a wealth management firm or other type of investor, just to kind of give you a start in investing in hedge funds. There are some very basic things to look at while analyzing hedge fund managers. This is not financial advice but it is kind of just some basics on hedge fund education and now hedge fund businesses are formed.
The first thing is to avoid one-man hedge fund shops. That one person gets sick, God forbid if they died, their business is not going to be sustainable. You know multiple minds acting collectively with some organization is going to be more powerful than one person, even a team of just 2 or 3 people is better in my experience to invest in than just a one-person hedge fund.
The second thing is not having an administration firm. Since the Madoff scandal mini board of advisers of hedge funds all over the world have been forcing their hedge fund to have a third-party fund administration firm in place. As for many reasons it verifies the assets, it has some checks and balances while running the hedge fund and if you need someone who is not using the fund administration firm, you have to want to know why and wonder how serious they are about working with other types of investors like yourself.
The third thing is have no ability or track record of raising capital. If someone is at $5M or $10M or $30M on capital they may be worth looking at, maybe they’re just getting started, maybe they have an unrecognized talent on their team and a deep bench of experience on their team and you can be one of those first people to discover them. You can have huge amount of capacity in this voyage maybe very well. But many times the funds which have a lot of talent but are bad at raising capital may not survive long enough to really have a sustainable business. They don’t want to invest in a hedge fund and do all these due diligence and grow a great relationship with a hedge fund manager just to have them go out of business a year later.
So even if the hedge fund doesn’t have a lot of capital they should at least have some potential ways of raising capital and somebody on their team dedicated to raising capital, not the portfolio manager doing it 5 hours a week and not the idea that they’re going to build a track record for 5 years and then outsource it to a third-party marketer. It just doesn’t happen very often. Lots of times those hedge funds never make it.
The fourth thing is not having any marketing materials. The hedge fund manager meets with you and he hasn’t put all of his thoughts, his investment processes, risk management strategies, his past investment details, his term sheet. A service provider is all within a well-organized document and he really hasn’t invested in his business enough then he’s wasting your time. You should tell him to go back and come back to you when he has organized his thoughts within a one-pager and a PowerPoint pitch book. It’s very, very basic. So if somebody doesn’t have that they’re really not worth meeting with in most cases unless you’re doing somebody a favor just to give them some early kind of hedge fund startup advice.
And the final tip here on avoiding certain types of hedge fund managers is just the one who has no deep experience on the team. There are some teams out there that are focused on very niche areas like trading, orange juice contracts, or trading freight shipping contracts or on running a global map or a strategy focused only a few different parts of the world or focused on frontier markets specifically, maybe they specialize in 4 different countries specifically. So there’s very, very specialized people out there. There’s people that have 20 years or 30 years experience in one or two small niche areas. So don’t settle for a team that didn’t have a really experience on an area that’s directly connected to their scope of investments.
And again, it might seem overly obvious but many times hedge fund managers might have some fancy sounding model or their back testing might be amazing or they have this 3-year track record that’s amazing. But really I wouldn’t care what their 3 or 5-year track record is if they don’t have a unique position in the marketplace and don’t have a deep experience that leads them to have any competitive edge in the marketplace.
So I hope these 5 tips helped. I’ll just run through them again; avoid hedge fund managers, have a one-man shop that don’t have an administration firm, they don’t have the ability or track record of raising capital, funds that don’t have marketing materials and funds that don’t have a deep experience on their team that’s directly connected to what they’re investing in in their hedge fund.
This is Richard Wilson coming to you from Nice, France. Thanks for joining me and we’ll see you again next time.
Again, this video should not be taken as financial advice, please refer to your financial or legal adviser. I do hope that hedge fund investors like family offices, institutional investors and high-net-worth individuals will keep these red flags in mind while investing in hedge funds.
(Note: you must meet certain investing requirements to invest in hedge funds and this video should not be interpreted as financial advice.)
Tags: Hedge Fund Investing Best Practices, Hedge Fund Investing, investing in hedge funds, how to invest in hedge funds, how to invest in a hedge fund, investing in hedge fund, investing hedge funds, hedge fund investments, hedge fund investing
Free Hedge Fund Video on Europe's Hedge Fund Industry
The following video was recorded for the Certified Hedge Fund Professional training program. I have been travelling throughout Europe during the last year attending conferences and speaking at industry events. In this video, I talk about the state of the European hedge fund industry. If you are reading this via RSS or email, click here to watch the video.
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Transcript for Hedge Funds in Europe
Hello, it’s Richard Wilson. I just want to give you a quick 3-minute update on the hedge fund industry in Europe. Overall since the past financial recession Europe has pretty much recovered the assets that were lost. They were up to about $440 billion in Europe 3-4 years ago dropped down to the 200s and now it’s back up to about $430 billion in assets, of known assets in hedge funds in Europe. So they really kind of recovered from where it was in the past but managers are becoming more and more sensitive to over regulation and over taxation of their businesses.
I’ve heard that some hedge fund managers based in London can end up paying up 60% taxes. Meanwhile, the EU just past a new regulation called the “Alternative Investments Fund Manager Directive.” It was just passed this year and you know it won’t fully go into effect until 2017, but managers can feel the pain coming of that and the extra cost and compliance burden and that combined with high taxes is just making a lot of fund managers look at basing their fund out of places such Switzerland or Monaco, or I’m here today shooting this video, or other places such as Singapore or other tax-friendly havens.
And it’s really not a matter of cheating on your taxes or trying to not to pay your fair due of taxes, really it’s that these governments don’t understand it by making their environment regulatory heavy and raising taxes on alternative investments and hedge funds and private equity funds, what they’re doing is just driving these funds and masses to other locations like here. So I think that trend is going to continue. I think that people are going to keep on raising taxes in many different countries but then smart countries such as Switzerland which is not part of the EU and Monaco which is not part of the EU, so they won’t be affected directly from that new directive which came out. I think that people are going to greatly benefit and they’re going to see their economies grow and they’re actually the ones who are going to be collecting more taxes at the end of the day rather than these countries who just want to collect a higher percentage of taxes. That’s not very smart business wise.
Just a few more quick tips on European hedge funds, New York is still the hedge fund capital of the world and still has a slightly more hedge funds than London, about 20% of US allocation goes to European hedge funds so lots of US investors are allocating to European hedge fund managers. And about 19% of all global assets are based in London, based hedge funds. So I thought those would be a couple of interesting facts to share with you just about how the environment is here and the hedge fund industry is definitely growing, it’s robust, there’s lots of people invested in the hedge funds, that’s also very dynamic. I just got done speaking at the Game 2011 Hedge Fund Conference.
There was about 800 professionals there including 300 investors and 500 hedge fund managers. And their attitude was positive, people are raising capital and doing pretty well in the industry but it’s also dynamic, people are switching strategies, raising capital from Asia, changing whether they’re based in Switzerland, et cetera, et cetera.
So, hope you enjoy this quick recap of the European hedge fund industry. It’s Richard Wilson and we’ll see you again soon.
The tax and regulatory environment has made many hedge fund managers consider leaving the European Union countries to avoid these measures. Overall, however, hedge funds in Europe have recovered rapidly.
Tags: hedge fund europe, European hedge funds, Europe Hedge Fund, Hedge Fund in Europe, European hedge fund industry, hedge fund managers in Europe, European hedge fund firms, list of hedge funds in Europe
Free Hedge Fund Video: The Hedge Fund Investor Pyramid
The following video was recorded for the Certified Hedge Fund Professional training program. In this video, I share a unique tool that I have created to show the different investor types that hedge funds should be targeting in their marketing efforts. If you are reading this via RSS or email, click here to watch the video.
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Transcript for Hedge Fund Investors video:
Hello, this is Richard Wilson and welcome to this short video on Hedge Fund Investors. In this video I’m going to explain to you what types of investors hedge funds go after, why they focus on those types, how that totally changes as the hedge fund moves from a $1M to $30M to a $100M to a billion dollars plus, and why it’s really important to understand this concept if you’re working in the hedge fund industry, looking to raise capital or running your own hedge fund.
Surprisingly a few people in the industry go through formal hedge fund training and that is why lots of people can work in the industry for years without knowing some of these basic facts about how it operates. Now to start with, let’s look at the bottom of the pyramid. If you’re a hedge fund that has $100K to $10M in capital under management within your hedge fund there is very limited number of investors you can go after. And before I even start to label any of these please know that all of these types of investors are generalizations. The type of investors that you can go after in your country, in your state for you to have a hedge fund could be different.
So these are general guidelines, what types of investors hedge funds typically go after. It’s not set in stone and don’t take any action with hedge marketing or capital raising till you’ve spoken with somebody in your compliance department or an attorney that’s an expert on these issues. But now if you’re a hedge fund that manages a $100K to $10M in capital pretty much have limited options in the front of you. You can go after friends and family, small wealth management firms or some hedge fund seeders or fund to fund that seed small startup hedge fund managers or emerging managers as they’re called.
Really your options are limited here because people don’t trust that you’re going to be in business a year or two from now. They don’t trust that you have a talented team typically, that you don’t have a long enough track record, that your business really isn’t set up yet or profitable enough yet to survive long-term.
The second group here is $10M to $100M in assets. And these are often referred as emerging managers still and there’s a small percentage of “institutional investors” that will look at emerging managers. A very small percentage of institutional consultants, a very small percentage of fund to funds, some family offices and then your sweet spot in this range is really going after wealth management firms, very small family offices, high net worth individuals in a compliance approved way. Again, seed capital providers and really what you’re looking for here is people who want to take the bet on the manager which is not large yet. They don’t have hundreds and millions of dollars in capital but they can see your growth, they can see you’ve reinvested in your business, they see that you’re going in a good direction.
The next level up is when you get to $100M or more. This is when you start to be referred to as institutional quality. Many times up to $100M you’ll be called an emerging manager and many people if you’ll call them, they will almost, just hanging up right in your face if don’t have a $100M in capital or more because you’re not “institutional” enough for them. And this can get very frustrating to say the least for anyone trying to raise capital and many of you probably know exactly what I’m talking about. But when you get to this level, it opens a lot of doors for raising more capital. Do know that some institutional investors will still call you an emerging manager until you get to $250M or even $500M or more. But typically 80% of the market is calling you an institutional manager after you get to a $100M.
Now, when you get to this level you can market yourself to family offices full on to institutional consultants in most cases, to some pensions and foundations and endowments but many will require you to have those higher asset levels. And the top of the pyramid here is when you get to a billion dollars plus. I really have not heard of many allocations if any that require more than a billion dollars in capital. Even insurance plans, pension funds, endowments, foundations, ultra high net worths, the biggest single-family offices in the world -- typically if you have a billion dollars that’s a sustainable business plus some.
And it’s really about the institutional quality of your risk management procedures, the consistency of your invest process, the team you have in place. It’s more about everything else going on in your business rather than asset level at that point. Once you get past $500M, $800M, a billion dollars, the AUM issue instead of being the number one roadblock in your hedge business really is just a detail and it’s the other parts of your business that become center stage.
So I hope this short summary of what types of investors exists in the hedge fund marketing, who you can go after, what stages, who hedge fund managers are raising capital firm right now today at these different levels is very helpful and educational for you. Thanks and please join us again soon. It’s Richard Wilson and keep in touch.
Tags: hedge fund investors, alternative investors, hedge funds investors, alternative fund investors, hedge funds investors, what is a hedge fund investor?, hedge fund investing, investing in hedge funds, hedge fund investor requirements
Free Hedge Fund Video on the Ocean-Ready Hedge Fund
The following video was recorded for the Certified Hedge Fund Professional training program. In this video, I explain a problem that many emerging managers and startup hedge funds encounter: not having a strong business model. If you are reading this via RSS or email, click here to watch the video.
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Transcript for Ocean-Ready Hedge Fund Business Model:
Hello, this is Richard Wilson and today I’m going to talk to you from here in Nice, France about making your hedge fund business seaworthy or ocean-ready. Well, I’ve been learning more about sailing in these past few years while raising capital and working in a hedge fund industry. And I think one truth about a hedge fund industry is that if you launch your hedge too quickly and you go out and meet with investors too quickly and too many different types of investors too quickly, you’re going to get recorded in different institutional databases as being unprofessional, as not having a clear investment process. You’re going to do a lot of damage.
I even spoke with somebody at the game 2011 conference last week about this. And they said that they only represent and they only raise capital for fund managers within in their first 6 months of launching their fund, because otherwise they’ve probably already done so much damage for themselves in the industry, that’s a waste of their time but you can work with them. I think that’s a little bit extreme but I think the advice goes along with what I’m trying to tell you right now is that when you’re sailing in a bay as many sailboats do here around Nice, you can have some things that aren’t totally working well in your boat.
Your rigs cannot be set up right, your ropes could be loose, maybe a couple of your sails are in bad shape, maybe the things on the walls of your sailboat inside the boat aren’t really secured. But if you go out in the ocean you really need to be kind of sea-ready or ocean-ready or seaworthy. In other words, if you get in a storm or if you go over a bunch of swells you don’t want things flying around inside the cabin of your boat. If you need to have your main sail work because your engine dies, you really need that main sail to work. You can’t really rely upon, you got a coast guard in the bay that he’d come, tow you over 50 feet to your dock. It’s much more serious when you’re out in the ocean.
So it’s really a great analogy for running, starting and growing your hedge fund because before you go out and meet with very important investors, you don’t or you have a great relationship with, you really want to have everything walked down and in place. You want to have your marketing materials, kind of in grade A shape, institutional quality, everything that you’ve shown an investor you want to have looked at 5 times by people in your team, do the fifth draft, have it compliance approved. If somebody is going to ask you for a standard DDQ or a question that comes in a standard DDQ you should be able to answer within one business day, not a week or two.
Everything you do in your business should be well-polished by the time you’re meeting with new investors. Hopefully when you launch your fund you’re able to balance ideas off of consultants, advisors, service providers and some investors you already have good relationships with, then that’s how you get the important feedback and really figure out what’s your checklist, what’s those 20 or 30 things that you are kind of seaworthy before you go out and start meeting with investors face-to-face about your fund.
And this is something that I think is a common mistake to make. People want to get out there and raise capital really quickly, you know speed an implementation, just get out there and meet with investors and get great feedback, but really you need to be very cognizant of the fact that if you do that too early and too fast, you’re really going to hurt yourself and you could sink your boat very on in the process, whereas if you just take that first valuable piece of the feedback from your investors, really use it, implement it, and evolve your fund at higher levels before taking it out to 300 different investors, you’re going to be much better off in the long run.
So I hope you enjoyed this video. It’s Richard Wilson coming to you from Nice, France and we’ll see you again soon.
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Tags: Hedge Fund Business Model, Hedge Fund Business Models, Ocean Ready Hedge Fund Business Model, Hedge Fund Business, Hedge Fund Businesses, Hedge Fund Business Strategy, Hedge Fund Business Process
The following video was recorded for the Certified Hedge Fund Professional training program. In this video, I explain hedge fund liquidity and provide a definition of the lock-up period and how it affects hedge fund liquidity. If you are reading this via RSS or email, click here to watch the video.
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Here is a summary of this hedge fund training video on Hedge Fund Liquidity:
Liquidity is often something taken into consideration by investors that invest in hedge funds.
With some hedge funds, you have monthly liquidity and you put in a redemption request that will be filled by the end of the month.
Other hedge funds have long lock-up periods because they invest in assets with longer investment horizons.
The average lock-up period for a hedge fund is 18 months.
A lock-up period could be very strict or the fund might simply charge a fee for withdrawing your money earlier than the agreed-upon time.
Institutional investors may be better suited for these longer-term investments.
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Tags: Hedge Fund Liquidity, Hedge Fund Liquidity definition, hedge fund lock up period, hedge funds lock up, limited partner lock up, general partner lock up, hedge funds liquidity, fund of hedge funds liquidity, hedge fund investor liquidity
Free Hedge Fund Video on Hedge Fund Public Relations
The following video was recorded for the Certified Hedge Fund Professional training program. In this video, I explain how hedge funds can benefit from devoting some time and resources to improving their public relations efforts. If you are reading this via RSS or email, click here to watch the video.
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Transcript for Hedge Fund PR:
Hello, this is Richard Wilson and now we’re going to talk just real briefly on public relations for hedge fund managers. This is a topic that isn’t talked about too much because most hedge fund managers ignore public relations strategies, don’t talk to the press at all and kind of shy away from any type of media attention. And it’s probably one of the most ignored marketing tools that I see in the hedge fund industry. I’ve spoken and worked with over a thousand hedge funds. I work pretty closely with three dozen hedge funds and with the exception of one fund which I’d highly publish, author as a CIO, the rest at best put out one press release every two or three years and that was the extent of their public relation strategy.
So I definitely recommend meeting with a PR expert or a consultant, plan it out, reading four or five books on the area and figuring out how you can position your firm in the industry maybe combine that with some authority positioning tactics and it can really go a long way for your hedge fund. The media is always hungry for real-time opinions, from real hedge fund managers. That’s something they see as kind of scarce because hedge fund managers don’t want to talk to the media. So if you speak with your compliance firm or your in-house legal counsel and figure out when it’s appropriate and what can be said, what can’t be said or if you respond only through e-mail interviews which are first written and then approved by your compliance counsel before being sent out.
There’s ways on working with the press and getting around or taking regulations into consideration while still speaking with them and benefiting from that exposure. Sometimes your hedge funds can be written about whether you respond to the press or not. So it’s better to have some control of that message rather than none. I have about four main tips if you want to implement some public relations strategies for your hedge fund. First and foremost definitely speak to your legal counsel on exactly what you can say, what you cannot and have a documented process in place that he has approved that you’re going to follow when you’re speaking with press professionals. You’re always on the record when you speak with the press and you need to know what you’re going to say beforehand or how the approval process works or if you can really respond in writing, et cetera.
Second, I would develop a list of 10 to 15 targeted publications you’d like to appear in, identify the editor of the financial columns within the publication or news source and then introduce yourself to them, tell them who you are, what you do, how much money your firm manages, show the full picture of your strategy, your challenges, your background and your pedigree so that you look like a valid source of information for him. Next, try to speak at public events, conferences, networking events and other places in the industry where you’ll be heard by others in the industry but also by members of the press. That’s going to help while pitching yourself to the press and it will help you get invited for other goals in different publications in the industry.
The fourth tip is to consider writing a book on your insights and experience. People who write books get invited more often to speak to the press, speak at conferences, to write articles, to write columns and it might sound really extreme to somebody who’s already working 50 hours a week to write a book but really just writing a couple of articles a week, it’ll turn into a book in just two or three years. You’ll have a book written just from those articles if you do a good job writing them. So it’s really not hard as it may seem.
So my fourth PR tips in managing a public image as a hedge fund manager would be, first, speak to your legal counsel on compliance and to find a process that’s going to work every time when you speak to the press. Next, develop a list of 10 to 15 target publications you want to go after and figure out who the editors are of those publications. Next, speak at public events, conferences, seminars, networking events and last, fourth try writing a book. You can do this through writing separate articles or just getting a book deal on writing a book. But I think with these four tips, you’ll be doing 10 times more than the average hedge fund manager does and you will realize some long-term benefits from that.
So thank you for your time and we’ll see you again soon.
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Tags: hedge fund PR, Hedge Funds Public relations, hedge fund PR campaign, Hedge Funds PR, Hedge Funds Public Relations Service Provider, Hedge Fund PR tools, Hedge Fund Manager PR, Hedge Fund Manager Public Relations
The following video was recorded for the Certified Hedge Fund Professional training program. In this video, I will explain the hedge fund ecosystem which includes the business partners and service providers that are necessary for a successful hedge fund business. This area is often overlooked so if you are looking to start a hedge fund this will be a very valuable video for you. If you are reading this via RSS or email, click here to watch the video.
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Transcript for Hedge Fund Ecosystem
Hello, this is Richard Wilson and today we’re going to go over the hedge fund ecosystem. Basically, the different service providers and business partners that are basically included in the successful life of a business ran as a hedge fund, and that’s one thing that lost of hedge fund managers I think sometimes look over when they launch their fund, they’re really starting a small business and all those things that need to be in place for in a business, need to be in place for a hedge fund.
So if you’re looking to start a hedge fund, if you’re looking to enter the hedge fund industry or if you’re looking at different paths for how you could advance your career in hedge funds, this maybe one of the most important videos you want this year to just kind of cover the different business partners that hedge managers have and what I call a hedge fund ecosystem.
So first of, you should know there’s 5 main business partners that a hedge fund works with. And I would say over 95% of the 1,000 hedge fund managers I’ve worked with use all of these partners or at least 4 out of 5 and I’ll go over that here in just one minute. The 5 business partners are legal compliance firms, auditing firms, prime brokerage firms, fund administration firms, and third-party marketers. Now, I’m going to go over the definition of each and how and when they’re used.
Legal compliance firms are obviously used when you form your fund. It can be relatively expensive to form a hedge fund due to the number of provisions and partnership clauses and gaining clauses and a high water mark details. There’s just so many different things that go into creating a contract which is going to be flexible and robust for the operation of your funds the next 5, 7 or 20 years that you really want to do it right, and to do it right means you have to retain the services of someone who is usually is $15K to $40K or sometimes $60K to $80K depending on the structure of your fund. After you launch your fund, ongoing compliance reporting, ongoing legal assistance, just standard contracts for employees, nondisclosure, non-compete, that’s usually an ongoing resources using a lawyer or an attorney you can go to for the life of your fund.
Next is auditing and accounting firms. Sometimes you’ll have an accounting firm come in and do an independent assessment or help you improve financial controls as a consultant or it might just help you prepare for an audit. The auditing firm completes an audit either quarterly or annually. There’s some people, they may have some monthly activities but generally the big audits are done quarterly and annually. And if you’re an audit professional working in another industry you should know that a hedge fund auditing business is large and growing, more funds are being audited more frequently with more robust reporting each quarter which their investors get to see.
Prime brokerage is the space where a service provider usually inside of a large investment bank provides custody trading and leverage to a hedge managers and that they’re able to help managers leverage their assets and custody it within the third-party institution which helps improve the trust that investors have in their business. Often times a higher quality, the prime brokerage firm, the better it is for the hedge fund manager and almost every hedge fund I know works with a prime brokerage firm. It’s kind of expected, so this is one thing where if you’re starting a hedge fund you definitely want to seek out prime brokers and if you are looking to learn more about prime brokerage we actually have a website, primebrokerageguide.com which is a great website dedicated completely to prime brokerage.
Next, one business partner of hedge funds is a fund administration firm. This is a firm which will do third-party verification of wire transfers still help you with operations outsourcing day to day or month to month account reconciliation, accounting, bookkeeping. Basically all of the operational infrastructures or processes that your hedge fund is completing, almost all of those could be outsourced to a fund administration firm, they make sure they’re done by experts in those areas, they’re done consistently and professionally and as another source of operational improvement which investors are sometimes demanding.
I heard from a hedge fund just last quarter that they were on the board of another hedge fund and one of the advisers was — and he was requiring that his hedge fund retains a fund administration firm, an independent fund administrator or he would leave their board because he just didn’t want to have any of those operational risks or a possible fraud risk. It can go on when you don’t have an independent fund administrator. So it’s another point of assurance for investors to have one and it’s a growing trend in the industry to retain one.
The last business partner which we’re going to talk about is a third-party marketer which is an independent capital raiser. Third-party marketers often work for 2 to 5 years at a time. They’re outside of the fund and they act as a consultant who raises capital for the fund. So one third-party marketer, one professional might market for different hedge funds at once, usually they have different strategies and he might focus on something like wealth management firms or he could go all investor channels. But he is trying to raise capital on behalf of these funds and typically those funds are paying him a retainer plus a percentage of fees raise. So the typically rate in the industry is to charge some sort of fair retainer ongoing but then also charge a 20% of fees on assets raised.
So if you raise $10M, as long as that money is invested in the hedge fund, that third-party marketer should receive 20% of the fees earned off of that accounts. That’s different in every situation but that’s just kind of a template guideline for how those relationships work. And if you want to learn more about fund administration, please see fundadministration.org. If you want to learn more about third-party marketing, please see thirdpartymarketing.com. Both of those websites have hundreds of articles on those unique niche topics. If you’re looking to hire somebody in one of these areas, those websites will be helpful or this video might help if you’re looking to work in one of those areas, those websites might be helpful.
It’s good to do a thorough due diligence obviously on these professionals before you meet with them. Everybody is busy so it can be very tempting to meet with one. You know their reporting looks great, they seem very nice, they seem very nice, they were helpful on the phone, you know “Let’s go with them. Let’s just move on to the next task.” But I really think that whether you’re looking to work for someone or hire them as your service provider even more importantly, take the time to interview at least 3 different service providers who are not connected in any way, within each one of these niches. So interview 3 prime brokerage firms, interview 3 third-party marketers at least and have a short 1 to 2-page, 5-page due diligence questionnaire for them.
So have them complete information related to their references, their number of clients, their stability as a business, their niche expertise, their abilities, what they’ll be doing for you every week, every quarter, every month and exactly what that will cost. It’s good to have all that information upfront so you can compare kind of apples and apples with other organizations and make it less emotional and exciting or time-saving type decision because this is really critical. I’ve seen businesses in the hedge fund industry fail or thrive based on these 5 relationships. So it could be, you know choosing your business partners or it could be one of the top 3 most important things you ever do for your hedge fund. So it’s important not to rush it and to understand what you’re getting into.
So I hope this talk kind of helped clear it up. The main players in the hedge fund ecosystem, I hope it kind of makes it clear why it’s important to understand them and carefully choose them if you’re looking to work with them for any reason and I just want to thank you for your time here today. Thanks.
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Tags: hedge fund ecosystem, hedge funds, hedge fund ecosystems, hedge funds, hedge fund business, hedge fund business operations, hedge fund operations
