Hedge funds that wish to raise assets face a variety of challenges. In their marketing efforts, they can only reach out to qualified investors, and they are severely limited in the kinds of marketing tactics they can implement. In recent years, many services have emerged to help hedge funds navigate the challenging world of fundraising. Yet given the wide range of fundraising services that are now available, finding the right service can be a challenge in and of itself.
Challenges in Fundraising
In America, hedge funds can only market to investors that meet strict criteria imposed by the SEC. These sophisticated investors (i.e. fund of funds, endowments, pension funds and high-net-worth individuals) can be hard to identify, and even harder to please. Soliciting their money is often a tough sell, especially for emerging fund managers with little or no track record.
To make matters even more difficult, hedge funds are severely limited in the ways they can market their services. According to The Economist's 2008 "Guide to Hedge Funds," hedge fund managers cannot attract investors through "advertisements, articles, notices or other communications placed in a newspaper, magazine or similar media, cold mass mailings, broadcasts over television or radio, material contained on a website available to the public or an e-mail message sent to a large number of previously unknown persons." Being that qualified investors can be hard to find as it is, these restrictions amplify the difficulties that hedge fund manager face in uncovering prospective investors.
Fundraising Services
Given the challenges inherent in raising hedge fund assets, many fund managers enlist services that help them understand and implement legal fundraising tactics. Several types of such services exist, each with relative advantages and disadvantages. These services include "capital introductions" offered by prime brokers, "meet-and-greet" conferences, and directories of potential investors. There are even consultants that help hedge funds choose between these different services.
While Integrity has not recently evaluated capital introduction and conference services, we have recently taken a look at the various information services offered to hedge fund managers that seek databases of funds of funds. According to some initial research, there are at least five different services that offer directories of funds of funds. Most of the funds of funds directories have relatively similar pricing and coverage. BarclayHedge, Hedge Fund Research and Hedge Fund Intelligence all offer directories with over 2000 funds at a cost that falls in the low to mid five-figure range. Thomson's Nelson Information service, a slightly more expensive product, offers data on fund of fund managers, as well as plan sponsors, investment managers, and pension fund consultants. You can also obtain a free directory on HedgeCo.Net, though coverage of funds of funds is thin.
How We Can Help
While Integrity's core business is focused on finding and evaluating sources of financial research and data, we have also applied our expertise to finding and evaluating other services used by investment professionals, such as class-action settlement solutions providers and CSAs/CCAs. Fundraising services could be an interesting new area of analysis for current or potential hedge fund clients. Data on fundraising services might also be of interest to quantitative investors--looking at changes in the level and performance of hedge fund investors might potentially be predictive of major market shifts.
Posted at 09:57 am by William Greene
