As you go about starting a hedge fund, one of the first decisions you’ll need to make is how you intend to go about the process of capital introduction, and one of the first things you’ll realize is that there’s no such thing as enough resources to dedicate to it. Marketing a hedge fund to investors is a challenge to even the largest, most established operations, so it’s all the more daunting for the one- or two-person start-up.
It might not be enough to hire an investor relations pro. You’ll want to at least consider subscribing to a hedge fund database.
There are two kinds of hedge fund databases: those for keeping tabs on other hedge funds and those for marketing to investors and raising capital. In either case, you’ll face the familiar decision point of how much horsepower you need and how much you can afford.
“The advantages are scale and reach,” says Howard Eisen, co-founder and managing director of FletcherBennett, a New York-based hedge fund capital raising and consulting firm. His firm subscribes to Brighton House and FINsearches. “You can only speak to so many investors in a day and only so many are willing to take your phone call.”
He explains that both cap-intro professionals and in-house people who have investor relations responsibilities must often attend to other duties and can’t devote full time to keeping track of who’s investing in what this week. Rather than pester the buy side about what they’re allocating to, what they’re not interested in, what strategy they’ll be pursuing in which geographies, what their volatility tolerances are, what their liquidity requirements are, how long their due diligence process takes and other involved queries, Eisen believes there are clear advantages for everyone to use the online services to enhance their reach.
“They don’t have an axe to grind. They just want to fill in their database,” Eisen continues, noting that the investors prefer it this way too. “It narrows the number of people who cross their transom.”
“Ensuring the data on our service is accurate is vital to our success, and we’ve achieved this through many years of speaking directly to institutional investors,” says Amy Bensted, London-based hedge fund data manager for Preqin. “This involves a large team of analysts at Preqin devoting hundreds of man hours per week to contact these institutions. This is no easy task.”
Not everyone who’s marketing a hedge fund subscribes to such online services, though.
“We do not use a commercially available hedge fund database,” says Thomas Atwood, managing director of Pentucket Capital Management in Boston. “I tried different databases at another firm in 2005 and 2006, and the data was often incomplete and dated. Instead, we collect our own information from news articles and other sources and follow up to find decision makers.”
“If you are small and have a loyal investor base which may typically not be institutional, as well as a desire to keep your fund small, you may not need a service like Preqin. There are certain experimental and untested strategies that will not appeal to the institutional market, and for some of these managers gaining institutional investment may not be achievable,” Bensted concedes, but considers these outliers.
“Many managers are seriously looking to gather detailed intelligence to both find investors which would be interested in their fund as well as to find out how best to approach them.”