AIMA’s Virtual Next Generation Hedge Fund and Alternative Credit Manager Forum, hosted by K&L Gates, connected industry professionals via a week-long program of interactive webinars with over 300 viewers.

The series featured candid conversations with investors on structuring businesses, attracting investor interest, raising capital, and successfully navigating the gauntlet of investment and operational due diligence to secure an allocation. The bad news is an already daunting process is now even more difficult in the current crisis. The good news is investors are taking calls and sharing advice.

Key takeaways:

• Stand out:
  • Show what’s unique about how you generate alpha and construct a portfolio
  • Demonstrate business building acumen – hiring, vendor selection, operational risk management
  • Pedigree remains a signal - investing follows an apprenticeship model to some degree, so the influence of earlier training is recognized
• Be prepared:
  • Be clear and precise on the first pitch, as there may not be a second chance.
  • Request a meeting agenda ahead of time (particularly for follow-up meetings)
  • Have the suite of marketing documents and follow-up materials ready ahead of the first meeting. This includes a completed DDQ (with panelists referencing the AIMA template), marketing deck, and ability to respond quickly to transparency requests from compliance manuals to data
  • Be proactive – if an allocator is far down the line in investment due diligence, ask what documents would be required for operational due diligence and send them as soon as possible
  • Under virtual ODD, the bar can be higher with more detailed reference and professional background checks, and more thorough service provider confirmations
• Be patient:
  • Get ready for an already lengthy process to get longer. An additional 6-9 months of working capital may need to be on hand
  • Follow up, but don’t stalk. If there is no response after 1-2 attempts, leave the ball in their court. Thought leadership and research offers opportunities to engage.
• Circle your wagons
  • Start with investors who know you best - family, friends, prior investors, prior employers
  • Early-stage investors include seeders, family offices, HNW, fund of funds and certain pensions with emerging manager programs
  • Once funds reach ~$50mm AUM, endowments and foundations can be prospective investors, $1bn+ for pensions
  • Use conferences (virtual ones these days), databases to identify new prospects but be thoughtful about cold approaches in current environment
• Leverage service providers
  • An outsourcing model is gaining acceptance with allocators, but be cautious about what is billed to the fund rather than the management company
  • Prime brokerage consultants are not the only service providers to ask for advice – check with fund admins, law firms and even allocator ODD teams.
  • Quality service provider selection is paramount, but ODD teams understand that not all managers have the budget for the largest, top tier firms. Ultimately the manager is expected to demonstrate the diligence performed on service providers and the rationale for selecting them as a long term partner.
  • Cap Intro teams can be a good ally, especially as they have a good sense of who can invest in emerging managers
  • Placement agents – ensure incentives are aligned
• Use technology to your advantage:
  • Share information securely either via video chat with strong controls or secure data rooms
  • Manage data for easier, more timely reporting
  • Ensure strong cyber controls on home networks when working remotely
  • Video conferences are becoming more common and are likely to play a role long after travel restrictions are eased. Get comfortable presenting in this medium

Available recordings:

• Passing Operational Due Diligence as an Emerging Manager
• The Roadmap to Growth