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MANAGE A HEDGE FUND:
MARKETING TO INVESTORS &
RAISING CAPITAL
REALITY
Star%ng	
   a	
   hedge	
   fund	
   is	
   no	
   easy	
   feat.	
   It	
   is	
   extremely	
   compe%%ve	
   and	
   incredibly	
  
pricey.	
  It	
  will	
  run	
  you	
  at	
  least	
  $85,000-­‐$100,000	
  just	
  to	
  set	
  up	
  your	
  hedge	
  fund	
  –	
  not	
  
to	
  include	
  hiring	
  any	
  internal	
  staff.	
  It	
  also	
  does	
  not	
  include	
  the	
  expenses	
  you	
  will	
  
need	
   to	
   survive	
   during	
   the	
   capital	
   raising	
   phase.	
   Many	
   funds	
   take	
   years	
   to	
   raise	
  
enough	
  capital	
  to	
  aFract	
  the	
  ins%tu%onal	
  dollars.	
  So	
  really	
  think	
  long	
  and	
  hard	
  about	
  
both	
  your	
  start	
  up	
  costs	
  AND	
  your	
  annual	
  expenses.	
  Most	
  managers	
  forget	
  they	
  are	
  
crea%ng	
  a	
  business	
  not	
  just	
  trading	
  a	
  strategy.	
  Remember:	
  Your	
  assets	
  are	
  NOT	
  your	
  
revenue.	
  
IDEA
2	
  
WHY	
  LAUNCH	
  NOW?	
  
A	
  ques%on	
  always	
  on	
  an	
  investor’s	
  mind	
  is	
  what	
  makes	
  your	
  strategy	
  different	
  and	
  
how	
  does	
  your	
  background	
  directly	
  reflect	
  that.	
  Market	
  environment	
  plays	
  a	
  huge	
  
role	
  into	
  how	
  investors	
  view	
  your	
  strategy,	
  but	
  more	
  importantly	
  they	
  want	
  to	
  know	
  
that	
  it	
  is	
  a	
  sustainable	
  strategy	
  across	
  various	
  market	
  cycles	
  –	
  how	
  does	
  it	
  perform	
  
across	
  both	
  the	
  high	
  and	
  the	
  low	
  periods?	
  Is	
  the	
  infrastructure	
  in	
  place	
  to	
  support	
  the	
  
strategy	
  during	
  these	
  periods?	
  Market	
  Cycles	
  change	
  all	
  the	
  %me	
  so	
  in	
  marke%ng	
  your	
  
fund	
   you	
   want	
   to	
   make	
   sure	
   to	
   illustrate	
   your	
   successes	
   not	
   just	
   during	
   the	
   high	
  
periods,	
  but	
  the	
  low	
  ones	
  as	
  well.	
  	
  
3	
  
WHAT	
  IS	
  YOUR	
  UVP?	
  USP?	
  ELEVATOR	
  PITCH?	
  	
  
Understanding	
  your	
  unique	
  value	
  proposi;on	
  (UVP),	
  unique	
  selling	
  proposi;on	
  (UVP)	
  
and	
  elevator	
  pitch	
  are	
  vitally	
  important	
  to	
  gaining	
  interest	
  from	
  both	
  investors	
  and	
  
the	
  investment	
  community	
  at	
  large.	
  Be	
  sure	
  to	
  understand	
  the	
  difference.	
  
	
  
	
  
	
  
Unique	
  Value	
  Proposi%on:	
  
A	
  statement	
  that	
  clearly	
  
highlights	
  the	
  tangible	
  results	
  
a	
  client	
  can	
  expect	
  from	
  you	
  
in	
  using	
  your	
  product	
  or	
  
services.	
  
	
  
	
  
Unique	
  Selling	
  Proposi%on:	
  
A	
  statement	
  that	
  illustrates	
  
your	
  firm’s	
  difference	
  from	
  
your	
  compe%tors.	
  
	
  
	
  
Elevator	
  Pitch:	
  
A	
  short	
  speech	
  providing	
  a	
  
general	
  overview	
  of	
  your	
  
business	
  and	
  your	
  market	
  
value.	
  	
  
	
  
	
  
4	
  
UNDERSTANDING	
  THE	
  HEDGE	
  FUND	
  UNIVERSE	
  –	
  NEW	
  LAUNCHES	
  
5	
  
UNDERSTANDING	
  THE	
  HEDGE	
  FUND	
  UNIVERSE	
  –	
  INVESTOR	
  INTEREST	
  
6	
  
5	
  TIPS	
  ON	
  MANAGING	
  INVESTORS’	
  EXPECTATIONS	
  
It	
   is	
   no	
   secret	
   that	
   it	
   has	
   been	
   a	
   very	
   tough	
   capital	
   raising	
   environment	
   for	
  
managers.	
  Investors	
  are	
  geZng	
  smarter	
  and	
  are	
  looking	
  holis%cally	
  at	
  a	
  fund	
  during	
  
their	
  opera%onal	
  due	
  diligence.	
  Understanding	
  how	
  investors	
  assess	
  your	
  fund	
  will	
  
help	
  you	
  beFer	
  understand	
  how	
  to	
  prepare	
  for	
  those	
  mee%ngs.	
  Did	
  you	
  check	
  all	
  
the	
  boxes?	
  
Tip	
   #1:	
   Set	
   investment	
   minimums	
   to	
   help	
   offset	
   the	
   operaQonal	
   cost	
   and	
  
stress	
   of	
   providing	
   SMAs.	
   What	
   is	
   your	
   firm’s	
   level	
   of	
   transparency	
   to	
  
investors?	
  Do	
  you	
  provide	
  Separately	
  Managed	
  Accounts	
  (SMA)	
  –	
  SMAs	
  are	
  
great,	
  but	
  operaQonally	
  they	
  can	
  be	
  a	
  nightmare	
  for	
  a	
  small	
  fund.	
  Investors	
  
want	
   to	
   monitor	
   your	
   fund	
   to	
   make	
   sure	
   that	
   your	
   investment	
   thesis	
   is	
  
validated	
  by	
  investments	
  made.	
  You	
  can	
  provide	
  investors	
  with	
  a	
  high	
  level	
  of	
  
transparency	
  without	
  the	
  need	
  of	
  se]ng	
  up	
  SMAs.	
  
Tip	
  #2:	
  Standardize	
  how	
  you	
  deliver	
  investment	
  data	
  to	
  investors.	
  Don’t	
  
change	
  the	
  benchmarks	
  provide	
  an	
  explanaQon	
  in	
  your	
  monthly	
  report	
  for	
  
why	
  returns	
  weren’t	
  what	
  you	
  had	
  hoped.	
  Are	
  you	
  consistently	
  delivering	
  
the	
  same	
  benchmarks	
  even	
  in	
  bad	
  months	
  or	
  are	
  you	
  manipula7ng	
  the	
  
data	
  to	
  your	
  advantage?	
  Investors	
  want	
  to	
  see	
  trends	
  this	
  is	
  one	
  of	
  the	
  
reasons	
  why	
  the	
  allocaQon	
  takes	
  as	
  long	
  as	
  it	
  does.	
  Investors	
  understand	
  
that	
   bad	
   months	
   happen,	
   but	
   they	
   want	
   to	
   know	
   a)	
   how	
   bad	
   did	
   you	
  
perform	
  against	
  your	
  compeQtors	
  during	
  the	
  down	
  month(s)	
  b)	
  if	
  and	
  how	
  
have	
  you	
  re-­‐adjusted	
  your	
  investment	
  allocaQon.	
  
1
2 7	
  
5	
  TIPS	
  ON	
  DEALING	
  WITH	
  INVESTORS	
  ASSESSING	
  YOUR	
  FUND	
  (cont’d)	
  
Tip	
   #3:	
   Ask	
   the	
   right	
   quesQons	
   when	
   interviewing	
   third	
   party	
   service	
  
providers.	
  Make	
  sure	
  they	
  provide	
  business	
  value	
  outside	
  of	
  saQsfying	
  an	
  
investor’s	
  ODD	
  checklist.	
  How	
  are	
  you	
  ve]ng	
  and	
  selecQng	
  third	
  party	
  
service	
  providers?	
  Who	
  you	
  do	
  business	
  with	
  is	
  important	
  to	
  investors.	
  
But	
  also	
  you	
  want	
  to	
  make	
  sure	
  you	
  are	
  choosing	
  service	
  providers	
  that	
  
help	
  your	
  firm	
  grow.	
  Service	
  providers	
  are	
  only	
  so	
  good	
  as	
  the	
  service	
  
they	
  provide	
  for	
  your	
  firm.	
  
Tip	
  #4:	
  Actually	
  create	
  and	
  write	
  out	
  protocols	
  for	
  AML	
  and	
  Cyber	
  Security,	
  don’t	
  
just	
  say	
  you	
  have	
  them.	
  Investors	
  may	
  request	
  a	
  copy	
  for	
  review.	
  What	
  are	
  the	
  
policies	
  and	
  procedures	
  that	
  you	
  have	
  in	
  place	
  for	
  AnQ-­‐Money	
  Laundering	
  and	
  
what	
  types	
  of	
  Cyber	
  Security	
  protocols	
  do	
  you	
  have	
  in	
  place?	
  The	
  rise	
  of	
  cyber	
  
hackers	
   are	
   of	
   major	
   concern	
   to	
   investors	
   and	
   if	
   your	
   infrastructure	
   isn’t	
  
sophisQcated	
  enough	
  to	
  appropriately	
  handle	
  and	
  safeguard	
  their	
  investment	
  –	
  
then	
  guess	
  what	
  you	
  probably	
  won’t	
  get	
  that	
  allocaQon.	
  	
  
Tip	
  #5:	
  Take	
  Qme	
  to	
  pracQce	
  explaining	
  your	
  investment	
  thesis	
  to	
  
someone	
   who	
   isn’t	
   well	
   versed	
   in	
   hedge	
   funds.	
   Is	
   your	
  
investment	
   thesis	
   well	
   thought	
   out?	
   Can	
   they	
   understand	
   the	
  
raQonale	
  of	
  your	
  strategy	
  to	
  where	
  they	
  are	
  compelled	
  to	
  invest?	
  
Just	
   because	
   you	
   understand	
   the	
   ins	
   and	
   outs	
   of	
   your	
   strategy	
  
doesn’t	
  mean	
  everyone	
  will	
  even	
  sophisQcated	
  investors.	
  	
  	
  
3
4
5 8	
  
THE	
  CAPITAL	
  RAISING	
  PATH	
  
Tip:	
  
Leverage	
   your	
   Prime	
   Broker’s	
  
Capital	
   IntroducQon	
   Team	
   to	
  
assist	
  you	
  in	
  the	
  capital	
  raising	
  
process	
   whether	
   it	
   is	
   simple	
  
advice	
  or	
  real	
  investor	
  leads.	
  	
  
	
  
START	
  
GOAL	
  
Family	
  &	
  Friends	
  
Small	
  Ins%tu%onal	
  
Investors	
  
Large	
  Ins%tu%onal	
  
Investors	
  
Seed	
  Investor	
  
Start	
  targeQng	
  
family	
  offices	
  and	
  
wealth	
  managers	
  
Finding	
  a	
  seeder	
  	
  
First	
  Round	
  of	
  Capital	
  Raising	
  
(personal	
  money,	
  family,	
  friends,	
  
HNWIs	
  and	
  in	
  some	
  occasions	
  Seeder)	
  
Congrats!	
  You’ve	
  raised	
  
enough	
  money	
  to	
  akract	
  
large	
  insQtuQonal	
  dollars.	
  	
  
9	
  
Okay,	
  LET’S	
  REVIEW!	
  
Leverage	
   your	
   Prime	
   Broker’s	
  
Capital	
   IntroducQon	
   Team	
   to	
  
assist	
   you	
   in	
   the	
   capital	
   raising	
  
process	
   whether	
   it	
   is	
   simple	
  
advice	
  or	
  real	
  investor	
  leads.	
  	
  
	
  
Get	
  to	
  know	
  SMAs	
  before	
  doing	
  
one.	
  Set	
  investment	
  minimums	
  
to	
  help	
  offset	
  the	
  operaQonal	
  
cost	
  and	
  stress	
  of	
  providing	
  
SMAs.	
  	
  
Standardize	
  how	
  you	
  deliver	
  
investment	
  data	
  to	
  investors.	
  
Don’t	
  change	
  the	
  benchmarks	
  
provide	
  an	
  explanaQon	
  in	
  your	
  
monthly	
  report	
  for	
  why	
  returns	
  
weren’t	
  what	
  you	
  had	
  hoped.	
  	
  
Ask	
  the	
  right	
  quesQons	
  when	
  
interviewing	
  third	
  party	
  service	
  
providers.	
  Make	
  sure	
  they	
  
provide	
  business	
  value	
  outside	
  
of	
  saQsfying	
  an	
  investor’s	
  ODD	
  
checklist.	
  
Actually	
  create	
  and	
  write	
  out	
  
protocols	
  for	
  AML	
  and	
  Cyber	
  
Security,	
  don’t	
  just	
  say	
  you	
  have	
  
them.	
  Investors	
  may	
  request	
  a	
  
copy	
  for	
  review.	
  	
  
Take	
  Qme	
  to	
  pracQce	
  
explaining	
  your	
  investment	
  
thesis	
  to	
  someone	
  who	
  isn’t	
  
well	
  versed	
  in	
  hedge	
  funds.	
  	
  
Tip	
  #1:	
   Tip	
  #2:	
   Tip	
  #3:	
  
Tip	
  #4:	
   Tip	
  #5:	
   Tip	
  #6:	
  
10	
  
Get	
  more	
  %ps	
  on	
  how	
  to	
  aFract	
  investors	
  to	
  your	
  fund.	
  Schedule	
  A	
  Free	
  
Consulta%on	
  with	
  Crea%veCap	
  Advisors	
  and	
  make	
  your	
  fund	
  invaluable	
  
to	
  any	
  investor.	
  
	
  
	
  
Tyra	
  Jeffries,	
  Founder	
  &	
  Chief	
  Execu7ve	
  Officer	
  
tyra.jeffries@creaQvecapadvisors.com	
  	
  |	
  www.creaQvecapadvisors.com	
  
The	
  premier	
  MarkeQng	
  &	
  IR	
  consultancy	
  for	
  emerging	
  managers	
  
11	
  

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Raise Capital and Market Your Hedge Fund

  • 1. MANAGE A HEDGE FUND: MARKETING TO INVESTORS & RAISING CAPITAL
  • 2. REALITY Star%ng   a   hedge   fund   is   no   easy   feat.   It   is   extremely   compe%%ve   and   incredibly   pricey.  It  will  run  you  at  least  $85,000-­‐$100,000  just  to  set  up  your  hedge  fund  –  not   to  include  hiring  any  internal  staff.  It  also  does  not  include  the  expenses  you  will   need   to   survive   during   the   capital   raising   phase.   Many   funds   take   years   to   raise   enough  capital  to  aFract  the  ins%tu%onal  dollars.  So  really  think  long  and  hard  about   both  your  start  up  costs  AND  your  annual  expenses.  Most  managers  forget  they  are   crea%ng  a  business  not  just  trading  a  strategy.  Remember:  Your  assets  are  NOT  your   revenue.   IDEA 2  
  • 3. WHY  LAUNCH  NOW?   A  ques%on  always  on  an  investor’s  mind  is  what  makes  your  strategy  different  and   how  does  your  background  directly  reflect  that.  Market  environment  plays  a  huge   role  into  how  investors  view  your  strategy,  but  more  importantly  they  want  to  know   that  it  is  a  sustainable  strategy  across  various  market  cycles  –  how  does  it  perform   across  both  the  high  and  the  low  periods?  Is  the  infrastructure  in  place  to  support  the   strategy  during  these  periods?  Market  Cycles  change  all  the  %me  so  in  marke%ng  your   fund   you   want   to   make   sure   to   illustrate   your   successes   not   just   during   the   high   periods,  but  the  low  ones  as  well.     3  
  • 4. WHAT  IS  YOUR  UVP?  USP?  ELEVATOR  PITCH?     Understanding  your  unique  value  proposi;on  (UVP),  unique  selling  proposi;on  (UVP)   and  elevator  pitch  are  vitally  important  to  gaining  interest  from  both  investors  and   the  investment  community  at  large.  Be  sure  to  understand  the  difference.         Unique  Value  Proposi%on:   A  statement  that  clearly   highlights  the  tangible  results   a  client  can  expect  from  you   in  using  your  product  or   services.       Unique  Selling  Proposi%on:   A  statement  that  illustrates   your  firm’s  difference  from   your  compe%tors.       Elevator  Pitch:   A  short  speech  providing  a   general  overview  of  your   business  and  your  market   value.         4  
  • 5. UNDERSTANDING  THE  HEDGE  FUND  UNIVERSE  –  NEW  LAUNCHES   5  
  • 6. UNDERSTANDING  THE  HEDGE  FUND  UNIVERSE  –  INVESTOR  INTEREST   6  
  • 7. 5  TIPS  ON  MANAGING  INVESTORS’  EXPECTATIONS   It   is   no   secret   that   it   has   been   a   very   tough   capital   raising   environment   for   managers.  Investors  are  geZng  smarter  and  are  looking  holis%cally  at  a  fund  during   their  opera%onal  due  diligence.  Understanding  how  investors  assess  your  fund  will   help  you  beFer  understand  how  to  prepare  for  those  mee%ngs.  Did  you  check  all   the  boxes?   Tip   #1:   Set   investment   minimums   to   help   offset   the   operaQonal   cost   and   stress   of   providing   SMAs.   What   is   your   firm’s   level   of   transparency   to   investors?  Do  you  provide  Separately  Managed  Accounts  (SMA)  –  SMAs  are   great,  but  operaQonally  they  can  be  a  nightmare  for  a  small  fund.  Investors   want   to   monitor   your   fund   to   make   sure   that   your   investment   thesis   is   validated  by  investments  made.  You  can  provide  investors  with  a  high  level  of   transparency  without  the  need  of  se]ng  up  SMAs.   Tip  #2:  Standardize  how  you  deliver  investment  data  to  investors.  Don’t   change  the  benchmarks  provide  an  explanaQon  in  your  monthly  report  for   why  returns  weren’t  what  you  had  hoped.  Are  you  consistently  delivering   the  same  benchmarks  even  in  bad  months  or  are  you  manipula7ng  the   data  to  your  advantage?  Investors  want  to  see  trends  this  is  one  of  the   reasons  why  the  allocaQon  takes  as  long  as  it  does.  Investors  understand   that   bad   months   happen,   but   they   want   to   know   a)   how   bad   did   you   perform  against  your  compeQtors  during  the  down  month(s)  b)  if  and  how   have  you  re-­‐adjusted  your  investment  allocaQon.   1 2 7  
  • 8. 5  TIPS  ON  DEALING  WITH  INVESTORS  ASSESSING  YOUR  FUND  (cont’d)   Tip   #3:   Ask   the   right   quesQons   when   interviewing   third   party   service   providers.  Make  sure  they  provide  business  value  outside  of  saQsfying  an   investor’s  ODD  checklist.  How  are  you  ve]ng  and  selecQng  third  party   service  providers?  Who  you  do  business  with  is  important  to  investors.   But  also  you  want  to  make  sure  you  are  choosing  service  providers  that   help  your  firm  grow.  Service  providers  are  only  so  good  as  the  service   they  provide  for  your  firm.   Tip  #4:  Actually  create  and  write  out  protocols  for  AML  and  Cyber  Security,  don’t   just  say  you  have  them.  Investors  may  request  a  copy  for  review.  What  are  the   policies  and  procedures  that  you  have  in  place  for  AnQ-­‐Money  Laundering  and   what  types  of  Cyber  Security  protocols  do  you  have  in  place?  The  rise  of  cyber   hackers   are   of   major   concern   to   investors   and   if   your   infrastructure   isn’t   sophisQcated  enough  to  appropriately  handle  and  safeguard  their  investment  –   then  guess  what  you  probably  won’t  get  that  allocaQon.     Tip  #5:  Take  Qme  to  pracQce  explaining  your  investment  thesis  to   someone   who   isn’t   well   versed   in   hedge   funds.   Is   your   investment   thesis   well   thought   out?   Can   they   understand   the   raQonale  of  your  strategy  to  where  they  are  compelled  to  invest?   Just   because   you   understand   the   ins   and   outs   of   your   strategy   doesn’t  mean  everyone  will  even  sophisQcated  investors.       3 4 5 8  
  • 9. THE  CAPITAL  RAISING  PATH   Tip:   Leverage   your   Prime   Broker’s   Capital   IntroducQon   Team   to   assist  you  in  the  capital  raising   process   whether   it   is   simple   advice  or  real  investor  leads.       START   GOAL   Family  &  Friends   Small  Ins%tu%onal   Investors   Large  Ins%tu%onal   Investors   Seed  Investor   Start  targeQng   family  offices  and   wealth  managers   Finding  a  seeder     First  Round  of  Capital  Raising   (personal  money,  family,  friends,   HNWIs  and  in  some  occasions  Seeder)   Congrats!  You’ve  raised   enough  money  to  akract   large  insQtuQonal  dollars.     9  
  • 10. Okay,  LET’S  REVIEW!   Leverage   your   Prime   Broker’s   Capital   IntroducQon   Team   to   assist   you   in   the   capital   raising   process   whether   it   is   simple   advice  or  real  investor  leads.       Get  to  know  SMAs  before  doing   one.  Set  investment  minimums   to  help  offset  the  operaQonal   cost  and  stress  of  providing   SMAs.     Standardize  how  you  deliver   investment  data  to  investors.   Don’t  change  the  benchmarks   provide  an  explanaQon  in  your   monthly  report  for  why  returns   weren’t  what  you  had  hoped.     Ask  the  right  quesQons  when   interviewing  third  party  service   providers.  Make  sure  they   provide  business  value  outside   of  saQsfying  an  investor’s  ODD   checklist.   Actually  create  and  write  out   protocols  for  AML  and  Cyber   Security,  don’t  just  say  you  have   them.  Investors  may  request  a   copy  for  review.     Take  Qme  to  pracQce   explaining  your  investment   thesis  to  someone  who  isn’t   well  versed  in  hedge  funds.     Tip  #1:   Tip  #2:   Tip  #3:   Tip  #4:   Tip  #5:   Tip  #6:   10  
  • 11. Get  more  %ps  on  how  to  aFract  investors  to  your  fund.  Schedule  A  Free   Consulta%on  with  Crea%veCap  Advisors  and  make  your  fund  invaluable   to  any  investor.       Tyra  Jeffries,  Founder  &  Chief  Execu7ve  Officer   tyra.jeffries@creaQvecapadvisors.com    |  www.creaQvecapadvisors.com   The  premier  MarkeQng  &  IR  consultancy  for  emerging  managers   11