Recently we had the pleasure of interviewing Jerry Chrisphonte, CEO of Hedge FundDirectories.net, to talk about the hedge fund marketing and hedge fund directories. He provides some solid insight for investment marketers. Here is an excerpt from part one of that interview.
HFMA: Before we start talking about the industry, maybe you could just give us a little bit of background on you and how you ended up with HedgeFundDirectories.net?
Chrisphonte: Sure. So I’ve been in the industry for a bit over five years now, and my initial start was with a company owned by Euromoney called Hedge Fund Intelligence…. This is where I really learned kind of what investors in the industry were looking for, what marketers were looking for in the industry, as well as what hedge funds themselves were looking to get out of listening to these databases and really kind of using the data that we provided.
HFMA: And then the move over to Hedge Fund Directories?
Chrisphonte: So that transition really happened after about four years with Hedge Fund Intelligence. We didn’t really sell a directory product, so I had my demonstrations with service providers to the industry. While the majority of the products that were in the industry were geared towards investors in this space, so more tracking hedge fund performance details, tracking, prime brokers, orders, administrators, and really kind of investor-focused data points, there was really nothing for a service provider to the industry or a technology firm or a recruiter or a prime broker that really just wanted to maybe sell into the industry specifically, as opposed to really reaching out for all of those excess details that they didn’t need, so we created it.
And opposed to just kind of putting something out there that was good, we really took a community approach to developing a system where individual sales and marketing professionals could come together and buy and trade their hedge fund contacts in one place. And what we’ve done is successfully put together a research team that scours the Internet, scours hedge fund blogs, hedge fund newsletters, sites like LinkedIn, Facebook, social networking sites, as well as registered filing authorities like the SEC and FSA. So we’re really going to get a sense for on a global scale who is in the industry, as well as keep track of people moves, when someone moves from one hedge fund to another hedge fund.
HFMA: Now, it sounds like the application is almost a vertical application of Jigsaw.com.
Chrisphonte: Yeah, you nailed it. I love it when people understand what Jigsaw is, because that really makes my explaining of what we do here a lot easier. So essentially what Jigsaw is exactly that, it’s just really a community where people can buy and trade their contacts on kind of more of a domestic scale. But what we’ve done is we’ve just kind of taken that type of a model and really kind of honed it down just to the hedge fund industry and expanded it on a global scale, where people can buy and trade their hedge fund contacts in one place. And we only do hedge fund contacts; we don’t look really outside of that.
HFMA: Let’s talk about the industry and what’s happening in hedge fund marketing right now. What do you see happening? What do you see changing?
Chrisphonte: Well, some of the key changes are, obviously with kind of the crash in the markets there have been some systematic changes in the way marketers are going to be able to approach hedge funds. When the boom was going, there were tons of deals to be had within the hedge fund industry, and I think what you’re seeing now is, one, when the markets crashed hedge funds were a bit tighter with cash, adding on new services was less likely. And I think now, when things are starting to rebound a bit, hedge funds are looking back at adding in different prime broker or maybe switching up the recruiter or maybe kind of looking to outside service providers for additional services now.
What I think is going to happen in the future, I know just with the size of hedge funds, their assets are steadily increasing, as opposed to fund-of-funds taking the lion’s share of investor capital. It’s moving towards investors really kind of doing the due diligence themselves and really kind of starting to invest in single manager hedge funds themselves.
This is great for a couple of reasons, because single manager hedge funds will be able to kind of have that cash to reinvest and obviously try new technologies as well as try new systems, and obviously the service providers will benefit from that as well. And companies like us will benefit from that, being that service providers will need those direct contact details.
HFMA: And when you think about hedge fund managers, what makes them stand out? What makes them marketable in an environment like we have today?
Chrisphonte: Good question. I think some of the main things that a hedge fund manager really has to be nowadays to really kind of stand out amongst the fray. And obviously, breaking down hedge fund managers, there are three main tiers of hedge fund managers; so we have the new fund start-ups and the new fund launches that obviously are being written about, and then you have kind of the mid-tier guys, anywhere from $250 million to $750 million, and then you really get the $750 million and above managers, so really kind of the star players in the industry.
On a global scale I think there are maybe 400 to 420 billion-dollar funds. So there really aren’t that many out there. And if you look at kind of the kind of percentage of assets within those billion-dollar funds, they take up about 70 to 75 percent of the assets in the industry.
So I guess just taking a look at what makes a manager marketable, number one, trying to get your assets up to a space where an institutional investor or a larger investor wouldn’t feel like they’re kind of investing, into your portfolio and they became a majority stake or a majority percentage of your assets. So one, getting your assets up to par.
Two, track record. Obviously investors want to see historical returns, they want to see that, you’ve kind of weathered the climate of ups and downs successfully. And then I think three goes really back into principal backgrounds and kind of, their own personal investment in the firm.
HFMA: Now, one of the things that we’ve been hearing is that if you are starting out and you really need more than what you can raise just from the friends and family, you might want to take a different approach. In other words people are saying, “Look, if you can’t get going with just your friends and family money, don’t bother.” What’s your thought?
Chrisphonte: Okay… there’s two sides to that argument. If you can’t get going with the capital that you have on hand it’s going to become extremely hard to get investors excited about your offering. It’s really hard to get new investors onboard. Even if you worked with a third-party marketing firm or you really had extensive contacts in the industry, when it comes to investors, a lot of the institutional investors and larger pension firms, their hands are really tied in terms of how much of their portfolio can be allocated to a smaller fund.
It’s really taking a risk with that new manager. The appetite for risk right now wouldn’t be the highest, just because of what’s happened lately. So I really think if you don’t have the capital to really get to a decent size, where a larger investor would be considered or be looking to invest in a hedge fund of your size it might not make sense.
On the other hand, if you have the potential to grow – so for example, there are kind of star traders or star fund managers that are rolling out of these billion-dollar funds where they’re launching a brand new firm and they’ve maybe taken some of their colleagues that have worked with them in the past and they do kind of have a track record on hand, even if they don’t have the assets to begin, those type of contacts would still make sense for them to be in the industry.
They’re not just kind of a new kid on the block, they really do have a track record, they’ve worked at a billion-dollar fund, they’re used to managing those types of assets, and if they transition into their own fund it’s really kind of the network that they already had, where they were really kind of using those network connections.
And chances are as long as the performance, stays in line or does well, they should have an easier time raising assets than maybe a newer guy.
Stay tuned for part two of our interview next week where we discuss hedge fund databases and directory best practices.
Want to hear more? You can listen to the entire Hedge Fund Marketing Best Practices Interview
Gain access to the largest global hedge fund directory dedicated to the Hedge Fund industry; with over 3000 management companies encompassing upwards of 40,000 unique hedge fund and fund of funds contacts. HFD is perhaps the largest community of its kind dedicated to intelligently sourcing contacts within the hedge fund industry. HFD is unique in that it was developed primarily for hedge fund marketing and sales.