A high water mark is an important concept in hedge fund compensation and fee structures. In the following video, I provide you with a definition of the high water mark.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Coming soon.
Transcript of High Water Mark Definition
Hello, this is Richard Wilson and welcome to this short video on hedge fund training. It’s just going to be about one topic, one term called the “Hurdle Rate.” And you might have heard hurdle rates in the news and the hedge fund managers, marketing materials, in one of the books you’re reading for the CHP designation. And a hurdle rate is really a set performance figure that must be achieved before any performance fee can be calculated and paid to a hedge fund manager.
So to back up one step, most hedge fund managers charge a management fee and they charge a performance fee. Typically, the management fee is 2% and the performance fee is 20%. What this is saying is that, for example, if an institutional investor is looking at investing in a hedge fund and they know that inflation is 3.2%. And they go to the hedge fund manager and the hedge fund manager was saying “Well, we’re going to charge 20% for any performance,” while on the institutional investor’s mind he can get something that can give him an inflation rate return at little or no risk.
And so the hedge fund manager wants to be able to say “Okay, we won’t charge you our performance fee until we beat that 3.2% inflation benchmark.” So until we beat inflation, we won’t consider it performance or out performance and we won’t charge you that fee. And so a hurdle rate is something that was kind of invented to take out that objection to investing in hedge funds and they’re going to charge for all of this performance which really isn’t data performance. If you’re charging these high fees we want something that’s above and beyond what we can get for less fees and less risk elsewhere.
And so that is really why the hurdle rate exist and you’ll see that over 95% of hedge fund managers that our firm has interacted with and the thousand managers that we’ve seen, people have hurdle rates in place and especially small to mid-size hedge funds which are hungry to grow capital. It just makes sense having a place and it kind of makes the deal on both sides a little bit more fair.
So there’s a short definition and explanation of hurdle rate, why it exist, why it’s in place. If you have any more hedge fund questions, please feel free to submit it to us and thank you for your time today.
A high water mark is an important concept in fee structuring, I hope that this video provided a helpful overview.
The hedge fund industry is like an ecosystem and it’s important to understand how the various players in the industry interact. In order for you to better understand this system, I have recorded the following video on the hedge fund ecosystem.
Video Transcript/Summary: The strategies and tips provided within this video module include:
The hedge fund ecosystem refers to the different business partners in the hedge fund industry, of which 95% of existing hedge fund managers utilise the services of at least four. These five are (i) legal compliance firms, (ii) audit firms, (iii) prime brokerage firms, (iv) fund administration firms and (v) third party marketing firms.
Legal compliance firms are used when you are setting up your fund, which is a detailed process that can be quite expensive. In order to do this right, you have to retain the services of someone who charges usually $15-$40k but sometimes $60-$80k. Once the firm is launched, they manage compliance reporting, legal assistance, contract and other ongoing resources.
Accounting firms will come in and do an independent assessment or help with financial controls or prepare for an audit. An auditing firm will carry out their audits quarterly and annually.
Prime brokerage often refers to the service provider within a large investment bank and provides custody, trading and leverage to hedge fund managers. Most hedge funds work with a prime brokerage so for new hedge funds, particular focus and attention is emphasised here. We have set up www.primebrokerageguide.com as an insightful resource.
Fund administration firm will do third party verification of wire transfers, help with operations outsourcing, do day-to-day account reconciliation, book keeping and all other operation processes. It is a growing trend in the industry to retain the services of a fund administration firm to reduce operational and fraud risks. More information can be got at www.fundadministration.org.
Third party marketers are an independent capital raiser for the hedge fund. They often work for 2-5 years as a time, acting as a consultant outside of the firm. A third party capital marketer will typically work for a multiple of hedge funds at any one time, adopting various different strategies. Funds will pay him/her a retainer and a percentage of funds raised. This percentage is usually 20% for as long as the funds raised remains within the fund. To learn more, visit www.thirdpartymarketing.com.
Due diligence on all of the five providers within the ecosystem should be carried out, meeting with at least three from each before making a final decision, rather than making an emotional decision after meeting just one.
Hedge funds often fail or thrive based on the relationships developed in the hedge fund ecosystem.
Transcript for Hedge Fund Ecosystem
Hello, this is Richard Wilson and today we’re going to go over the hedge fund ecosystem. Basically, the different service providers and business partners that are basically included in the successful life of a business ran as a hedge fund, and that’s one thing that lost of hedge fund managers I think sometimes look over when they launch their fund, they’re really starting a small business and all those things that need to be in place for in a business, need to be in place for a hedge fund.
So if you’re looking to start a hedge fund, if you’re looking to enter the hedge fund industry or if you’re looking at different paths for how you could advance your career in hedge funds, this maybe one of the most important videos you want this year to just kind of cover the different business partners that hedge managers have and what I call a hedge fund ecosystem.
So first of, you should know there’s 5 main business partners that a hedge fund works with. And I would say over 95% of the 1,000 hedge fund managers I’ve worked with use all of these partners or at least 4 out of 5 and I’ll go over that here in just one minute. The 5 business partners are legal compliance firms, auditing firms, prime brokerage firms, fund administration firms, and third-party marketers. Now, I’m going to go over the definition of each and how and when they’re used.
Legal compliance firms are obviously used when you form your fund. It can be relatively expensive to form a hedge fund due to the number of provisions and partnership clauses and gaining clauses and a high water mark details. There’s just so many different things that go into creating a contract which is going to be flexible and robust for the operation of your funds the next 5, 7 or 20 years that you really want to do it right, and to do it right means you have to retain the services of someone who is usually is $15K to $40K or sometimes $60K to $80K depending on the structure of your fund. After you launch your fund, ongoing compliance reporting, ongoing legal assistance, just standard contracts for employees, nondisclosure, non-compete, that’s usually an ongoing resources using a lawyer or an attorney you can go to for the life of your fund.
Next is auditing and accounting firms. Sometimes you’ll have an accounting firm come in and do an independent assessment or help you improve financial controls as a consultant or it might just help you prepare for an audit. The auditing firm completes an audit either quarterly or annually. There’s some people, they may have some monthly activities but generally the big audits are done quarterly and annually. And if you’re an audit professional working in another industry you should know that a hedge fund auditing business is large and growing, more funds are being audited more frequently with more robust reporting each quarter which their investors get to see.
Prime brokerage is the space where a service provider usually inside of a large investment bank provides custody trading and leverage to a hedge managers and that they’re able to help managers leverage their assets and custody it within the third-party institution which helps improve the trust that investors have in their business. Often times a higher quality, the prime brokerage firm, the better it is for the hedge fund manager and almost every hedge fund I know works with a prime brokerage firm. It’s kind of expected, so this is one thing where if you’re starting a hedge fund you definitely want to seek out prime brokers and if you are looking to learn more about prime brokerage we actually have a website, primebrokerageguide.com which is a great website dedicated completely to prime brokerage.
Next, one business partner of hedge funds is a fund administration firm. This is a firm which will do third-party verification of wire transfers still help you with operations outsourcing day to day or month to month account reconciliation, accounting, bookkeeping. Basically all of the operational infrastructures or processes that your hedge fund is completing, almost all of those could be outsourced to a fund administration firm, they make sure they’re done by experts in those areas, they’re done consistently and professionally and as another source of operational improvement which investors are sometimes demanding.
I heard from a hedge fund just last quarter that they were on the board of another hedge fund and one of the advisers was — and he was requiring that his hedge fund retains a fund administration firm, an independent fund administrator or he would leave their board because he just didn’t want to have any of those operational risks or a possible fraud risk. It can go on when you don’t have an independent fund administrator. So it’s another point of assurance for investors to have one and it’s a growing trend in the industry to retain one.
The last business partner which we’re going to talk about is a third-party marketer which is an independent capital raiser. Third-party marketers often work for 2 to 5 years at a time. They’re outside of the fund and they act as a consultant who raises capital for the fund. So one third-party marketer, one professional might market for different hedge funds at once, usually they have different strategies and he might focus on something like wealth management firms or he could go all investor channels. But he is trying to raise capital on behalf of these funds and typically those funds are paying him a retainer plus a percentage of fees raise. So the typically rate in the industry is to charge some sort of fair retainer ongoing but then also charge a 20% of fees on assets raised.
So if you raise $10M, as long as that money is invested in the hedge fund, that third-party marketer should receive 20% of the fees earned off of that accounts. That’s different in every situation but that’s just kind of a template guideline for how those relationships work. And if you want to learn more about fund administration, please see fundadministration.org. If you want to learn more about third-party marketing, please see thirdpartymarketing.com. Both of those websites have hundreds of articles on those unique niche topics. If you’re looking to hire somebody in one of these areas, those websites will be helpful or this video might help if you’re looking to work in one of those areas, those websites might be helpful.
It’s good to do a thorough due diligence obviously on these professionals before you meet with them. Everybody is busy so it can be very tempting to meet with one. You know their reporting looks great, they seem very nice, they seem very nice, they were helpful on the phone, you know “Let’s go with them. Let’s just move on to the next task.” But I really think that whether you’re looking to work for someone or hire them as your service provider even more importantly, take the time to interview at least 3 different service providers who are not connected in any way, within each one of these niches. So interview 3 prime brokerage firms, interview 3 third-party marketers at least and have a short 1 to 2-page, 5-page due diligence questionnaire for them.
So have them complete information related to their references, their number of clients, their stability as a business, their niche expertise, their abilities, what they’ll be doing for you every week, every quarter, every month and exactly what that will cost. It’s good to have all that information upfront so you can compare kind of apples and apples with other organizations and make it less emotional and exciting or time-saving type decision because this is really critical. I’ve seen businesses in the hedge fund industry fail or thrive based on these 5 relationships. So it could be, you know choosing your business partners or it could be one of the top 3 most important things you ever do for your hedge fund. So it’s important not to rush it and to understand what you’re getting into.
So I hope this talk kind of helped clear it up. The main players in the hedge fund ecosystem, I hope it kind of makes it clear why it’s important to understand them and carefully choose them if you’re looking to work with them for any reason and I just want to thank you for your time here today. Thanks.
I hope that this video has given you a better understanding of the hedge fund ecosystem.
I was at a marketing conference a couple of years ago and I was reminded of the streets of Boston. In the following video, I talk about how cow paths relate to hedge fund marketing and how understanding this concept can help you raise capital.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Coming soon.
I hope that by understanding the concepts of cow paths and educational marketing you can improve your capital raising strategy.
The educational marketing approach is one that I have found can be useful in capital raising. In the following video, I explain the educational marketing strategy and how it can be effectively used in capital raising.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Educational marketing is one of the most effective ways of growing capital, leveraging your time and positioning you as an authoritative figure. It also increases transparency, a vital consideration these days considering a recent report highlighting 78% of institutional investors will only invest in something they understand.
Whilst some funds are highly sophisticated, top secretive and black box, it is much more powerful and beneficial to be transparent and show the inputs in your investment process and where your competitive advantage lies. A10,000 foot view, which provides an easy-to-understand overview of the process and core components, is required.
Four ways to market your hedge fund in an educational way are (i) dedicate 20% of your presentation to educational content, (ii) have a folder of marketing material to deliver to clients when you meet them, (iii) practice speaking and writing (iv) target wealth management firms and financial planners.
Dedicate 20% of your presentation to educational content, footnoting industry terms and providing explanations at the end. Explain the process in a straight forward manner and give an overview of the team before getting into trading or risk management tools.
Have a folder of marketing materials to deliver to clients when you visit them. This includes a one pager, powerpoint presentation, monthly/quarterly reviews and a white paper, either delivered by someone within your firm or elsewhere.
Practice speaking at conferences where your investors go to, not your competitors, and write at least one article per week on what you are learning, in order to synthesise your knowledge.
Target wealth management and financial planners, who have little knowledge on hedge funds, compared to institutional investors. There is a great opportunity here to provide them with detailed marketing material, each varied in terms of their sophistication. These wealth managers will in effect, act as a sales representative of your materials, to their high-net-worth clients, which is an extremely powerful tool.
The educational marketing strategy can be an effective tool for raising capital.
In the wake of the financial crisis and the Bernard Madoff scandal, hedge fund governance has become more important than ever. In the following video, I cover some useful hedge fund governance best practices and practical strategies.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Governance best practice is related to becoming the more institutional quality firm and is now a common topic because institutional investors typically only invest in people that meet a certain checklist box mentality.
Having leading proactive governance practices can be a competitive advantage in the hedge fund industry, where skepticism is often prevalent and where everyone is interested in transparency.
Separation of duties, such as those of the risk management and portfolio management teams, is important, as is the need to have best practice financial controls in place. There are many consultants who can help with getting these financial controls set up.
Biggest takeaway from our interviews is how important and beneficial it is to to form an independent governance board that essentially takes the side of the investor and represents their best interests.
Independent governance boards can oversee and ensure best practice in relation to hurdle rates, performance reporting and costs, with regards to service providers and the business as a whole.
Despite the clear benefits, many small-medium sized funds are not implementing these best practices.
In summary, governance best practice is extremely important for hedge funds, who should consider separating duties within their business and put in place an independent board of directors to facilitate transparency and representation of clients best interests.
Transcript for Hedge Fund Governance
Hello, this is Richard Wilson and today we’re going to talk about the importance of governance best practices for hedge funds. You know I read some book, we have a whole chapter on governance best practices because I think it’s such an important topic, it is related to becoming the more institutional quality firm which everybody talks about because everybody knows that the institutional investors typically only invest in people that made the certain checkbox mentality and having a leading proactive governance can be a competitive advantage in the hedge fund industry where everybody is interested in transparency, everybody at some level kind of distrust other parties in the industry until they’ve done their due diligence. So having this type of governance is really going to ensure investors that you have their best interest in mind.
One of the most important things about having good governance procedures in place is to have separations of certain duties, like having the operational or like the risk manager is separated from the portfolio manager. It’s also about having just general best practice financial controls in place. There’s many consultants out there that work in a hedge fund industry and other industries. They can help you put in place basic financial controls so that you’ll at least have some level of checks and balances and how things are approved such as payments to service providers, wire transfers, redemptions. There should be some thorough checks in that area and documented so that investors can see that there’s proper governance in place.
And I think that the biggest takeaway from interviewing people in the area of governance and consulting a risk management, the most important thing that I found hedge funds can do is to form an independent board, a governance board which takes the side of an investor. These are non-executive board members that take the perspective and the side of the investor and protect the investor’s interest within the hedge fund. So the board might meet on a monthly basis and they’d meet for a longer period maybe in-person on a quarterly basis, and they can help by looking at when gaining clause are enacted and helping control that and look at hurdle rates making sure those aren’t adjusted at strategic times, looking at performance reporting, whose chosen the service providers, why certain cost are taking, what the expense ratio is within the fund.
They can look at many different things with the more critical eye and vote on improving or not improving certain actions in ways that I think investors really appreciate and lots of hedge funds are not doing this right now, lots of large ones are, lots of small, medium-sized ones are not and this is one thing that can really help your hedge fund stand out is being proactively well-governed. So that pretty much covers what I wanted to talk about today. The main takeaways are that governance is very important. It should be something that your team is studying and improving whether you go look to work in a hedge fund or you already run a hedge fund.
Look at strong financial controls in place, think separation of duty and checks and balances and then third, probably the most important, look at possibly creating at least at some point a board that is looking at things, an independent board, non-executives and look at things from the investor’s perspective and make sure that the investor’s best interest are always at least taken into consideration while decisions are being made inside the hedge fund.
So thank you for your time today and we’ll see you again soon.
While the scandals that have erupted over the last few years like the Bernie Madoff fraud have certainly damaged investor confidence and the reputation of some funds, it has also presented an opportunity for funds that have a strong focus on governance to attract investors this quality.
The pedigree of your hedge fund team is really important to the success of your hedge fund. In the following video, I explain how the pedigree of your hedge fund team can really have an impact on how successful your hedge fund is and the effectiveness of your capital raising.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Improving the pedigree of your team is important in order to attract new investors and additional talented professionals to the team, whose reputations provide value add.
The pedigree of the team can help build a really strong board of advisers if they really believe in the portfolio management and executive team of your fund.
Three ways of improving the pedigree of your team, which are not generally practiced by funds within the industry are (i) work with service providers and leverage their experience, (ii) include investing equity or profit sharing terms in the contracts offered to key personnel and (iii) build a board of strategic advisers or strategy team.
When deciding on which service providers or business consultant to look, carefully consider their pedigree and business experience and position them as business partners in your marketing materials.
Offering investing equity or profit sharing terms in the contract not only attracts greater talent but also ensures the person takes the role more seriously. Whilst a healthy salary is enticing, the promise of becoming a part owner after a certain period of time is what most experienced and talented personnel find particularly attractive.
The best way to expand the pedigree of the team is to build a board of strategic advisers or strategy team. Multi faceted professionals in areas such as capital raising or technically should be sought out and each should have a minimum 7-10 years experience. If the board is built carefully, it reassures potential investors and should enable your fund to grow more efficiently.
Transcript for Hedge Fund Team
Hello, this is Richard Wilson and today we’re talking about the importance of pedigree to a hedge fund manager and to a fund business in general. First and foremost, the pedigree of your team can be the thing which attracts the attention of a new investor. It can attract additional talented professionals to join your team and it can help you build a really strong board of advisors if they really believe in the portfolio management team and the executive team of the hedge fund. Those people who have had extensive training and education, extensive experience in the past with well known names, with good reputations are going to be value adds to your team.
The one thing I wanted to get across in this video is that there’s ways of expanding the pedigree of your team in ways that are nontraditional and it can really help your fund gain an advantage. One way, is by bringing on consultants or service providers and business partners. Whenever you interview a service provider or a potential consultant, you should look at their pedigree and their experience and then look at how that compliments your team’s experience because nowadays investors are doing Due Diligence on the service providers of the hedge funds they’re invested in as much as they are the hedge fund.
And so it’s very important to look at the experience of the people who we’re working with at those partners as extensions of your own team’s experience. You can position it that way in your marketing materials, position it that way over the phone and really benefit from the reality that it is that way in the real world. You do benefit from having highly experienced professionals working at the service providers you work with.
Another way to increase your pedigree is to have some sort equity or profit sharing investing period of say 2, 4 or 6 years so that when you hire somebody new, you may not be able to pay them $600,000 a year right now but what you can’t do is offer them a healthy enough salary they can survive and then show them that after 4 years, in writing, in a contract that as long as they stay employed with the firm, they’d invest and they become part of equity owners or profit sharers in the firm. I think that lots of promises are made in the investment industry and aren’t kept unless they’re on paper and a contract.
And so it’s very important that that is done so the person takes it seriously. Especially someone who’s been around for a while and are not straight out of college or a graduate program, they’re going to want something in writing. So if you’re serious about it then show them you’re serious about it, and you can usually attract much more talented and experienced professionals by doing something such as that.
The next way which is probably the best way to expand your expertise quickly when you don’t have lots of money to hire another whole team of professional to make your team in a higher level of pedigree is to build a board of strategic advisors. And you can call this the board of advisors or strategic advisors or it could just be your strategy team. It doesn’t have to be a board of advisors which sometimes same as remote and unconnected to who your team really is. Strategic advisors could be experts in auditing, experts in capital raising, operations improvement, technology, they can be experts who are multifaceted so that as your firm grows they help you grow even quicker and help you solve problems and make decisions very wisely. These should be people in general with at least 7 to 10 years experience in their niche, if not more.
And I think that if you build this carefully you can have somebody in place that you would otherwise have to hire as a consultant anyways as you grow but it will also reassure investors that you have somebody who’s a total expert in risk management, in portfolio management and operational efficiencies and capital raising, all as part of your strategic team, an extension of your main team so that you can call upon them at any time and you can just grow more efficiently and quickly and using more risk management techniques along the way.
So those are three ideas you can use working with service providers and consultants and leveraging their pedigree, how to invest in equity or profit sharing terms in contract with potential employees for your fund or by building a strategic advisory team for your hedge fund.
You can improve the knowledge that your firm has to access and how quick your firm grows as a business. So I hope that these ideas help. They’re kind of the best practices that I’ve taken from many of the hedge funds that I worked with over the years. So I hope you enjoyed this video and we’ll speak again soon. Bye.
I hope that this video has given you a better understanding of why the pedigree of your hedge fund team is so important.
The hurdle rate is an important concept to understand in hedge fund compensation and fees. In the following video, I explain what a hurdle rate is and how it is used by hedge funds and investors.
Video Transcript/Summary: The strategies and tips provided within this video module include:
A hurdle rate is a set performance fee that must be achieved before any performance fee can be calculated and paid to a hedge fund manager.
Most hedge fund managers charge a management fee and a performance fee. The management fee is typically 2%, while the performance fee is generally 20%.
An example of a hurdle rate might be an inflation figure. Therefore, if inflation is running at 3.2%, the hedge fund manager will only get paid their 20% performance fee if the return they achieve for their client, is great than this 3.2% hurdle rate of inflation.
The hurdle rate was introduced as a way of ensuring that the performance fee charged by hedge funds was justified and to protect clients from paying for returns that could be obtained elsewhere, without taking on as much risk.
Over 95% of the hedge funds our firm is active with, operates with a hurdle rate in place, especially small-to-mid size hedge funds that are hungry to grow capital.
Hurdle rates tend to make the deal between clients and hedge funds that bit more fair.
Transcript for Hurdle Rate Definition
Hello, this is Richard Wilson and welcome to this short video on hedge fund training. It’s just going to be about one topic, one term called the “Hurdle Rate.” And you might have heard hurdle rates in the news and the hedge fund managers, marketing materials, in one of the books you’re reading for the CHP designation. And a hurdle rate is really a set performance figure that must be achieved before any performance fee can be calculated and paid to a hedge fund manager.
So to back up one step, most hedge fund managers charge a management fee and they charge a performance fee. Typically, the management fee is 2% and the performance fee is 20%. What this is saying is that, for example, if an institutional investor is looking at investing in a hedge fund and they know that inflation is 3.2%. And they go to the hedge fund manager and the hedge fund manager was saying “Well, we’re going to charge 20% for any performance,” while on the institutional investor’s mind he can get something that can give him an inflation rate return at little or no risk.
And so the hedge fund manager wants to be able to say “Okay, we won’t charge you our performance fee until we beat that 3.2% inflation benchmark.” So until we beat inflation, we won’t consider it performance or out performance and we won’t charge you that fee. And so a hurdle rate is something that was kind of invented to take out that objection to investing in hedge funds and they’re going to charge for all of this performance which really isn’t data performance. If you’re charging these high fees we want something that’s above and beyond what we can get for less fees and less risk elsewhere.
And so that is really why the hurdle rate exist and you’ll see that over 95% of hedge fund managers that our firm has interacted with and the thousand managers that we’ve seen, people have hurdle rates in place and especially small to mid-size hedge funds which are hungry to grow capital. It just makes sense having a place and it kind of makes the deal on both sides a little bit more fair.
So there’s a short definition and explanation of hurdle rate, why it exist, why it’s in place. If you have any more hedge fund questions, please feel free to submit it to us and thank you for your time today.
Understanding the hurdle rate is a key area of hedge fund compensation and fees. I hope that this video provided a good definition of the hurdle rate.
When I tell hedge fund managers about the power of copywriting in capital raising, they sometimes are completely unfamiliar with the term copywriting. In the following video, I talk about the value of copywriting in marketing your hedge fund.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Writing copy or sales letters is the most overlooked form of marketing in the hedge fund industry.
The difference between a $1 bill and a $100 bill is the message on the paper. As a result, one is more greatly valued than the the other. The same can be said of the difference between the typical hedge fund marketing materials compared to that of the top hedge fund marketing materials.
Marketing material written, using powerful words and strategies, will ensure your marketing materials are portrayed in a clear and robust manner.
The headlines of your sales letters, subject lines of your emails and first words of speeches and communication are most important. It can take hours to craft an attention grabbing headline but failure to grab the audiences attention immediately leads to no relationships being built.
Hedge Funds, family offices and private equity groups spend $20,000 on marketing every year. However, many fail to differentiate themselves by engaging in the industry standard marketing practices. Whilst graphic designers serve a purpose, insightful tips and lessons can be gleaned from working with a copywriter, in addition to providing a clear roadmap for your marketing.
Every investment fund uses emails and investor sales letters. Without the expertise of a copywriter, you may not be building the relationships possible in your communication, or worse still, you might actually be turning off your audience without knowing it.
Investment funds of all types are generally set up by successful traders and portfolio managers whilst very few are started by marketers. Therefore, most hedge funds lack the skill for niche marketing.
99% of the investment fund industry will not be using copywriting best practices in any way. Therefore if a fund can just use 20%, they will be that much better off.
Copywriting is too often overlooked as a capital raising technique and the sooner that you embrace copywriting the better.
A question that I often receive is, do I need hedge fund training? In the following video, I provide some reasons that you should consider completing a hedge fund training program.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Few professionals are formally trained on hedge funds.
Thus, many hedge fund professionals are not very familiar with other strategies and how other hedge funds or fund of hedge funds operate.
Hedge fund training can sometimes lead to promotions or new business opportunities.
Most of our economy in Europe and the United States is knowledge-based so that is our #1 asset and you need to invest in growing that knowledge.
Transcript for Hedge Fund Training
Hello, this is Richard Wilson and welcome to this short video on hedge fund training. One question I often get is whether — somebody is asking me whether they need hedge fund training or what’s the importance of getting trained on the topic of hedge funds, and I just wanted to cover that real brief because it’s such a common question.
The most important reason why you should receive training on hedge funds is that there really is not very many professionals and not a higher percentage of professionals who have been formally trained on hedge funds. So most people aren’t aware of other investment strategies that are much different from their own or they’re not aware of exactly how the fund of hedge funds operate. They do at a very high level, at the 10,000-foot level but not at the 500-foot level or 1,000-foot level which could make the difference ineffectively being able to work with the fund of hedge fund, maybe work for a fund of hedge fund or in the future, you know who know what types of joint partnerships or ventures might be available between you and the fund to fund.
So I think that that’s just one example of why it’s important to learn more about hedge funds. But other than that I’ve seen people who after completing hedge fund training programs were promoted from a hedge fund research associate to a portfolio manager and risk manager within a hedge fund. I know professionals who now are running companies such as a hedge fund recruiting firm that I spoke to last week, they now require everybody on their team complete CHP designation because they want to know that their recruiters know enough about hedge funds so they could work with their clients. They’re not going to embarrass the company or make a mistake. That’s really basic knowledge about hedge funds.
And I think the final reason why hedge fund training or really any type of training is valuable, is that most of our economy in Europe, United States is knowledge-based economy. Peter Drucker called us “knowledge workers” because instead of working with steel and metal and hard materials, we’re working with knowledge and abilities and skills that people have, which is all related to what you can learn and what you’ve been trained on.
And so if you think of a knowledge worker versus more of a blue-collar type job where you’re working with hard materials, your knowledge is really your asset. Like you yourself are your most valuable and most important asset. And the faster you grown that asset the more that you’re worth. And if you can grow that asset with knowledge, it’s specific to the job that you have, that’s going to be worth 2 times, 10 times, maybe 30 times more than knowledge that is just maybe more generic. You could read a book on sales or get sales training but how much valuable would it be to get capital raising training for hedge funds. That’s mini layers, more specific and more valuable.
So I think that lots of people sometimes forget that and forget how important they are as their own asset and positioning yourself in the industry with all of your experience, training and relationships is really one of the most important things you can kind of thing through and plan. So those are the main points I wanted to get across about the importance of hedge fund training. I hope that answers a few of your questions. And if you have more questions, please feel free to send them in to us. Thank you for your time.
I created the Certified Hedge Fund Professional program because I knew how valuable a training program on hedge funds would be. Since then, more than 1,200 professionals have enrolled in the program and gained greater knowledge about hedge funds.
In this video, I compare the investment process and the research process for a hedge fund. I will provide you with some ideas for how to improve or change your investment and research processes while making sure that you do not distress your investors by making drastic changes to your fund.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Institutional investors may become concerned by funds that drastically change their investment process from time to time.
Almost everyone tweaks their investment process over time, but changing your theory can be worrying to investors.
Having a three-step research process is important but often overlooked by funds.
Think about your processes as a system that is constantly improved and updated.
Transcript for Investment and Research Process
Hello, this is Richard Wilson and today we’re going to talk about the importance of an investment process and your investment research process, how those two go together, how you can be more institutional in communicating both to your investment process and your research process and how both of those things can be continually improved without damaging the consistency of your track record.
So first of, institutional investors as well as investors in general are always a little bit concerned about investment processes that greatly change over time because they might see the performance in your portfolio directly connected to one piece of your investment process but that’s not the same as what you did during the first half of your track record. They might just throw away that track record and start where your new investment process started because that is really irrelevant performance. So it’s very important to remember, if you’re going to change your investment process make sure you keep the core components in place because it really will change how you’re producing your returns, what risk you’re taking probably and that will really change the perspective that investors have on your long-term track record when it eventually gets longer.
One thing to remember is that almost everybody tweaks their investment process constantly, most hedge funds I know every — you know 1 to 3 years are changing little components of their investment process. That’s totally normal adding new risk management tools especially it’s something that’s commonly done. What’s different though is if you change your theory or if you change the main process or you take out 30% or 40% of the process. That is a major change and probably it should not be done unless it’s starting a new fund or it’s some drastic situation where you have no choice.
The difference between that and the investment research process is that many times when you bring in a research component there may be a 3 or 4-step process that your fund uses, which can be really helpful to document within your marketing materials, maybe there is the input stage where all of the research from infinite consulting firms, from some technology report or platform you have access to, from a fundamental research you may do, from trending site, from maybe global macro-type research, all of those inputs come in and then maybe there is a report that’s made or maybe there’s some sort of synthesis step, then after that maybe there’s a refining and then further synthesis step and then the research is actually put to use and applied to make any investments.
So having that, the 3-step research process which is very defined in who’s doing what and when and why is important and I think that lots of people skip that step and they don’t explain it exactly how they use the research and when and what inputs they have into that research process. And what’s important to know is that lots of times that research process will stay exactly the same, maybe you’ll have someone else helping with it and so it will be able but more robust but those 3 or 4 steps will remain the same, but those inputs maybe always changing, maybe always improving those inputs, changing how the information is received from manual to automatic, changing the level of information you receive, adding new inputs.
And so it’s important to think about it as a system and having these major components of the system very stable and steady and robust where the inputs to the system are always being improved, you’re always casting out new inputs and making sure that you’re getting the best information possible. So some of the best institutional quality funds I have seen do that are constantly refining their inputs and improving them.
So that’s the short talk I wanted to give on investment research versus investment process, how changes can affect the perception of your firm as being institutional quality or not and some ideas on like what can be changed and maybe cannot be changed without setting off some red flags on the investor point of view. So thank you for your time here and we’ll see you again soon.
I hope that this video has provided you with some insight on the investment and research processes.
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