Creative connections: Re-mapping emerging hedge funds’ capital-raising techniques

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Start-up and emerging hedge funds must increasingly look towards creative techniques and solutions when it comes to getting in front of allocators and raising capital. 

Speakers at last week’s HedgeweekLIVE North America Emerging Managers Summit outlined how the manager-investor dynamic has altered as a result of the Covid-19 pandemic, with networks and relationships now fostered across a “hybrid” model that encompasses face-to-face meetings and digital conferencing. 

“The game has changed,” said Nick Pepe, managing partner and COO of Mill Hill Capital. “The hurdles to get in front of top-tier allocators in my opinion are much lower right now, but the road to an allocation is still really long and twisty. It’s not easier to get money in the door, but it is easier to get that first meeting, in my opinion.” 

Noting how his firm launched a carry neutral tail fund during the midst of the pandemic, Pepe added: “The most effective thing that we’ve done over the last 15 months is go out to those that we performed well for and told them that we're looking to grow. Ask them for advice, ask them for introductions, and the introductions you get from an investor that actually has skin in the game carries a weight and credibility with it that’s hard to replicate.” 

Ari Glass, founder and managing member at Boothbay Fund Management, noted that the hedge fund industry posted a strong period of performance and growth in 2020 in the face of sizeable challenges. 

“But over time there’s something amiss – it’s been very difficult to onboard new talent and to incorporate them; you miss the informal water-cooler type conversations where a lot is learned,” Glass told the session. “Yet the fact is the industry probably has gone away from this idea of physical meetings in someone’s office. Maybe the idea of what an office should be has permanently changed to some extent.” 

Ron Biscardi, CEO OF iConnections meanwhile reflected on the allocators’ stance, the types of strategies they are looking for and the types of managers they are willing to meet with. He suggested industry participants have overcome the “awkwardness” of video conferencing, adding the fundraising process have been reshaped by digital networking. He pointed to a new hybrid relationship-building process between managers and investors, with initial conversations taking place on Zoom before moving to the face-to-face sphere, which he believes “will always be a big part of this industry.” 

“We formed iConnections just over a year ago and it was formed with the intention to provide a connectivity solution to the alternative investment industry as a result of covid,” Biscardi explained. “The core focus is really facilitating the discovery process and then the meeting process especially that initial meeting process for allocators and managers.” 

Panel moderator Alison Graham, chief investment officer, Voltan Capital Management, explored some of the creative techniques and solutions available to managers in identifying and connecting with allocators. The session also heard how emerging managers now must think carefully about how their investment strategy and trading approach relates to the liquidity and structure they can offer to investors, and how it will slot into the latter’s overall portfolio. 

Jim Neumann, partner and chief investment officer at hedge fund advisory Sussex Partners, spoke of the importance of more effectively targeting potential investors. 

“Know your client – ie your allocator – and know what they’re up to, and you can then come with a targeted offering. That is much more likely to get a response,” Neumann told the panel. “Around 15 years ago, some of the prime brokers started to wake up to the message that you have to target clients, just like you do from a trading desk, or from a sales and trading desk. That was a refreshing change that is now permeating the market.”