Raising investor assets remains the biggest challenge facing hedge fund managers. Recent data from Hedgeweek emphasizes the severity of this capital-raising predicament – 82% of emerging managers cite securing investments as their top hurdle, while 62% of established hedge funds share this primary pain point. These statistics highlight a make-or-break need for hedge funds to strategically demonstrate differentiated value and access channels beyond friends and family or word-of-mouth referrals.
To shed light on stubborn fundraising obstacles and provide actionable solutions, Hedgeweek sat down with Dan Sondhelm, CEO of Sondhelm Partners, an award-winning firm focused on helping asset managers raise capital, build brands, and scale through marketing and distribution best practices.
Q: Dan, most fund managers cite raising assets as one of their biggest challenges. In your experience, where are hedge funds going wrong when trying to articulate their value and stand apart for investors?
A: Too often, funds fail to clearly convey their unique selling points and differentiators in a compelling way. All hedge funds inherently seek to deliver alpha, but managers must specify how they achieve outperformance through truly distinguished philosophy, proprietary models, niche exposures, defensive posturing, etc. Be explicit in addressing how you augment or diversify an overall portfolio, whether through maximum upside capture potential, Sharpe ratios, mitigating drawdowns and volatility in stress periods, or providing continuity of returns through various market cycles. Tell stories about why you do what you do, not just how. Crisply positioning on these precise dimensions demonstrates relevance and appeal to investors.
Q: What strategic steps can managers take to identify and target suitable prospective investors for their fund efficiently?
A: In most cases, the foundation of your initial investor base will likely comprise mostly personal connections – friends, family members, close business colleagues, and similar ties. Initially search locally as well, fostering face-to-face relationships regionally before expanding your target list nationally. Early capital commitments from those in proximity or relationship circles establish helpful credibility for attracting institutional investments from pension funds, endowments, foundations, and similar professional allocators.
In expanding beyond personal contacts, retail-focused gatekeepers like RIAs and multi-family offices also tend to be more readily accessible for emerging managers given the latitude and inclination to take on some portfolio risk relative to larger institutions mostly focused on established, pedigreed managers. Maintaining a constantly updated and highly focused list of qualified prospective targets for your outbound efforts, derived from intelligence on which channels and even geographies align closest with your fund’s particular strategy, structure parameters, and ideal investor profile, leads to more efficient asset gathering through tailored, differentiated outreach.
Q: In today’s noisy marketplace, how should hedge funds effectively incorporate thought leadership into their fundraising strategy?
A: Developing content showcasing your expertise in written, video, audio, or live settings serves as a crucial tool for significantly boosting brand recognition and trust among allocators digesting tremendous volumes of information daily. Initially, publish perspectives on specialised investment themes or market developments through bylined articles on your firm’s website and LinkedIn. Then, repurpose that proprietary content into submissions at leading investment industry outlets.
Expand visibility by researching relevant conferences centred around your strategy to apply for speaking slots locally and nationally over time as brand exposure grows. Proactively volunteering commentary to financial journalists at mainstream media outlets like CNBC, Bloomberg, and Wall Street Journal when timely market events develop in your sector amplifies credibility through the third-party validation inherent in earned media placements. This multifaceted thought leadership mixing organic and earned channels gets your hedge fund’s differentiated perspectives and grasp of esoteric themes in front of more investors.
Q: For hedge fund managers, how can conveying a more personal backstory help strengthen connections and credibility with prospective investors?
A: Savvy investors want to understand better the essence of the individuals managing capital, not just firms as faceless entities. Thoughtful backstories filling gaps between credentials and philosophy satisfy this qualitative craving for deeper connectivity. Spotlighting the development of your formative values, obstacles overcome, and mentors integral to your career allows prospects to relate more easily to shared experiences and, consequently, trust judgment calls. Linkage remains key, too – sharing how early lessons around risk-reward manifest themselves specifically in your fund’s positioning and process reassures investors through a deeper understanding of your professional DNA. Increasingly expect probing on backstory themes in initial prospect meetings as differentiation litmus tests versus peers.
Q: Shifting gears, what steps can managers take to strengthen branding, messaging, and collateral to attract investments better?
A: Conveying your firm’s essence starts with distilling your value proposition into a crisp elevator pitch – what makes you truly unique as an investment manager relative to the herd of competitors? Build a great website that explains the philosophy, process, team bios, and other qualitative content in accessible language while still underscoring complexity and institutional-grade operations where applicable. Consider short videos humanizing your firm’s culture and talent for a more visual dimension.
Craft aesthetically engaging pitchbooks and 1-pagers with data visualized through charts, graphs, and creative depictions focused on conveying investment insights rather than just presenting raw numbers or performance tables divorced from context. Include examples demonstrating how your strategies delivered alpha based on actual market scenarios in the past. Publish white papers detailing facets of your research and thought leadership direction. Across all materials, articulate differentiation while complying with regulations around performance marketing. Constantly evaluate if your messaging distinctly sets you apart.
Q: Lastly, with acknowledging significant capital raising challenges, what emerging hedge fund trends could provide positioning opportunities regarding future efforts to attract institutional investments?
A: As you highlighted initially, raising capital persists as an uphill climb years into launching any hedge fund. However, increased “retailization” through allocations in RIA channels or ’40 Act vehicles like interval funds presents newly accessible investor categories beyond qualified purchasers. Similarly, clearly communicating proprietary technology adoption or process enhancements around statistically enhanced modeling or machine learning allows for showcasing state-of-the-art innovation some allocators prioritize. Even niche exposures like cryptocurrency warrant featuring given rising appetite. Managers who capitalize on such developments early can gain share-of-mind and capital flows based on distinctive positioning.
Implementing well-rounded marketing and distribution strategies pays dividends for committed hedge funds seeking to thrive over the long term. As discussed, having the right partners provides execution assistance, too. With persistent effort and strategic finesse, your fund can consistently expand hard-earned assets.
Dan Sondhelm, CEO and Founder, Sondhelm Partners – Dan Sondhelm is the CEO and founder of Sondhelm Partners, a firm recognized by Hedgeweek multiple times as the Best Third-Party Marketing Firm and one of the Best PR & Marketing Firms. Since its inception in 2016, Sondhelm Partners has gained a reputation for transforming promising companies into notable market successes, specifically focusing on boutique and name-brand asset managers around the globe. Many of their clients, often seen as hidden gems, are companies with potential yet to gain recognition in the investor spotlight. Sondhelm Partners crafts these unique stories, allowing their clients to shine brighter in the market. The firm’s expert guidance empowers these companies to attract investors, enhance credibility, and establish strong brands.
Over the years, Sondhelm Partners’ efforts have raised billions of capital for clients from financial advisors, institutional investors, and other audiences, earning them multiple industry awards.
For more information, contact Dan Sondhelm at 703-597-3863 or [email protected]. You can also visit www.sondhelmpartners.com to learn more about the firm’s transformative work.
