2020 was a good year for most fund managers, as the market volatility provided them the opportunity to perform. Now, as investors become more comfortable with remote manager selection, can these emerging managers continue to stand out from the crowd and maintain their strong returns in 2021 while also tapping their industry contacts to make sure they get enough face time with potential investors?
Jeffrey Rosenthal, Partner and Leader of Anchin’s Financial Services Practice, observes: “Getting in front of investors has been more difficult this year, especially for startup managers. However, although initially investors were hesitant to jump into the fray of virtual due diligence, they reached a point where they had to deploy capital and many institutional investors became more comfortable performing their due diligence remotely.
“It’s not a perfect science and it’s hard to read body language over a zoom call so you can miss those intangibles in a remote meeting. But until managers can go out and meet investors again, the process is becoming more robust. When the pandemic is behind us, I don’t believe everything will go back to the way it was before, but there’ll be a good balance between remote and face to face meetings.”
Within this virtual world, Rosenthal says emerging managers need to be even more cognisant of what makes them different: “Nobody can time the market, but a good manager can make money in a volatile environment. However, what is key to raising assets is getting out there, presenting to investors and making sure you have a strong marketing deck and are very clear in communicating the essence and strategy of your fund.”
Rosenthal’s primary advice for startup managers hinges on them remaining strong in their convictions: “Focus on what you do best and don’t lose that conviction, don’t lose sight of your strategy. Know your strengths and surround yourself with a good team, whether its outsourced or insourced, to help build your business strategically.”
Emerging and startup managers are also under pressure to offer more flexible fee structures to prospective investors, Rosenthal notes: “In their bid to win clients, managers need to strike a balance between giving their seed investors the incentive they want and not giving conceding too much. Many investors don’t want to be the first ones to commit to a new fund manager, and those who do take a chance often want to be a partner rather than just an investor.
“The challenge is managers need money to trade as well as to generate enough fees to cover operating expenses, so it depends on whether they have alternative sources of accessing funds or whether they can structure a sound agreement with seed investors which is beneficial to all parties involved.”
Jeffrey Rosenthal, Leader, Financial Services, Anchin
Jeffrey I Rosenthal, CPA, CGMA is the Leader of Anchin’s Financial Services Practice. Jeffrey specialises in providing accounting, tax, and business advice to a wide array of financial services entities including broker/dealers, investment partnerships (domestic and offshore), funds-of-funds, mutual funds, private equity funds, and investment advisors. He has extensive experience advising newly formed entities and assisting with startup considerations such as form of practice, structure of agreements, compensation arrangements, compliance, and regulatory matters.
George Teixeira, Tax Leader, Financial Services, Anchin
George Teixeira, CPA, is the Tax Leader of the Firm’s Financial Services Practice and Leader of the Firm’s Private Equity Group, as well as a member of Anchin Private Client. George is experienced in servicing the alternative investment, private equity and financial services industries. His expertise includes tax planning for high net worth individuals, investment partnerships, investment advisors, broker-dealers, venture capital companies, hedge funds (and their investors), investment partnership management companies and general partner entities. He specialises in the taxation of securities transactions and financial services companies, in addition to offering tax compliance and consulting services for a diversity of entities and individuals.
