Raising the Profile of Smaller Managers in 2015
Small hedge fund managers, in order to succeed, need to be strategic when trying to grow their business since competition for assets is becoming increasingly fierce. On February 6, EisnerAmper sponsored the HFMWeek U.S. subscriber breakfast, “Raising the Profile of Smaller Managers in 2015.” Moderator and EisnerAmper Audit Partner Stephen Mazzotti and a trio of panelists discussed ways emerging funds can thrive, including targeting the appropriate allocators and offering incentives to them; having a differentiated strategy and not deviating from it; and finally, being able to properly focus on both investing and running the business operations. The speakers included Brett Yarkon, Head of Capital Introductions, Concept Capital Markets; Brian Reich, President, Atrato Advisors; and Dan Kochav, Partner/COO, Tenor Capital Management.
Yarkon told attendees that smaller managers need to make sure they take time to consider and identify the most viable investors for their specific investment strategy.
“It’s a numbers game,” he said. “You have to get in front of the right people, and enough people; eventually the allocations should come in whatever capacity necessary so you can sell the product you are trying to put out there to the marketplace.”
He added: “There is competition and you need to not only distinguish yourself from outperformance in the market but outperformance from your peer group as well.”
Reich, who manages an alternative investment advisory and consulting firm for family offices, suggested smaller managers offer investors appropriate incentives such as lower fees or founders’ share classes.
“At this point if you are starting a hedge fund and not offering a founders’ share class, unless you are doing something extremely unique or you are such a personality and have such pedigree that you don’t have to offer that, I think you are at a competitive disadvantage,” he said.
Meanwhile, Kochav, whose hedge fund focuses on convertible arbitrage, emphasized to the audience that smaller managers have a differentiated strategy and not deviate from it.
“Whether you like to hear it or not, you are always an emerging manager and unless you are one of the 20% of very large asset management firms, asset gathering firms that are out there, you are always an emerging manager. What does that mean?” he said. “That means you have to come in everyday, realizing there are a lot of things that can go wrong and a lot of things that can go right.”
He stated his belief that start-up managers should focus on three pillars encompassing both the investing component and running the business operations. The first is investment strategy: making sure as an emerging manager they differentiate themselves while at the same time sticking to their core philosophy. The second is their marketing strategy, having a plan whether relying on their prime brokerage relationships to get access to investors, dedicated internal personnel at the firm to focus on it, or using industry databases of allocators such as Preqin. And finally, the third is how they run the business, and said even though smaller managers tend to outsource a lot of their operations, an internal operations person at the firm needs to always double-check the work.