Many emerging managers and hedge fund startups mistakenly believe that just because they have a great strategy investors will eventually flock to their hedge fund. Hedge fund investors like to see that you have a strong hedge fund business model and that you are of institutional quality. In the following video, I provide some tips and strategies for getting your hedge fund ocean-ready.

Video Transcript/Summary: The strategies and tips provided within this video module include:

If you go out to meet investors too quickly, you could do a lot of damage to your hedge fund.
Some funds are too eager to raise capital and present their fund at a point when the fund is not yet at 100% and you risk losing that investor forever.
You want to have all your marketing materials and your investment strategy prepared and well-polished.
It’s ideal to have a lot of investors and consultants that will give you some advice early on in your fund’s lifetime and many managers try to launch so fast that they have not developed these relationships.

Transcript for Ocean-Ready Hedge Fund Business Model

Hello, this is Richard Wilson and today I’m going to talk to you from here in Nice, France about making your hedge fund business seaworthy or ocean-ready. Well, I’ve been learning more about sailing in these past few years while raising capital and working in a hedge fund industry. And I think one truth about a hedge fund industry is that if you launch your hedge too quickly and you go out and meet with investors too quickly and too many different types of investors too quickly, you’re going to get recorded in different institutional databases as being unprofessional, as not having a clear investment process. You’re going to do a lot of damage.

I even spoke with somebody at the game 2011 conference last week about this. And they said that they only represent and they only raise capital for fund managers within in their first 6 months of launching their fund, because otherwise they’ve probably already done so much damage for themselves in the industry, that’s a waste of their time but you can work with them. I think that’s a little bit extreme but I think the advice goes along with what I’m trying to tell you right now is that when you’re sailing in a bay as many sailboats do here around Nice, you can have some things that aren’t totally working well in your boat.

Your rigs cannot be set up right, your ropes could be loose, maybe a couple of your sails are in bad shape, maybe the things on the walls of your sailboat inside the boat aren’t really secured. But if you go out in the ocean you really need to be kind of sea-ready or ocean-ready or seaworthy. In other words, if you get in a storm or if you go over a bunch of swells you don’t want things flying around inside the cabin of your boat. If you need to have your main sail work because your engine dies, you really need that main sail to work. You can’t really rely upon, you got a coast guard in the bay that he’d come, tow you over 50 feet to your dock. It’s much more serious when you’re out in the ocean.

So it’s really a great analogy for running, starting and growing your hedge fund because before you go out and meet with very important investors, you don’t or you have a great relationship with, you really want to have everything walked down and in place. You want to have your marketing materials, kind of in grade A shape, institutional quality, everything that you’ve shown an investor you want to have looked at 5 times by people in your team, do the fifth draft, have it compliance approved. If somebody is going to ask you for a standard DDQ or a question that comes in a standard DDQ you should be able to answer within one business day, not a week or two.

Everything you do in your business should be well-polished by the time you’re meeting with new investors. Hopefully when you launch your fund you’re able to balance ideas off of consultants, advisors, service providers and some investors you already have good relationships with, then that’s how you get the important feedback and really figure out what’s your checklist, what’s those 20 or 30 things that you are kind of seaworthy before you go out and start meeting with investors face-to-face about your fund.

And this is something that I think is a common mistake to make. People want to get out there and raise capital really quickly, you know speed an implementation, just get out there and meet with investors and get great feedback, but really you need to be very cognizant of the fact that if you do that too early and too fast, you’re really going to hurt yourself and you could sink your boat very on in the process, whereas if you just take that first valuable piece of the feedback from your investors, really use it, implement it, and evolve your fund at higher levels before taking it out to 300 different investors, you’re going to be much better off in the long run.

So I hope you enjoyed this video. It’s Richard Wilson coming to you from Nice, France and we’ll see you again soon.

Before you go out and try to meet with investors to present your fund it is important that you have your hedge fund business model well-established and storm-tested so that it can stand up to inspections by hedge fund investors.

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An important part of running any successful company is reinvesting in the business, a hedge fund should be no different. In the following video, I provide you with ten signs that a hedge fund is investing in their own business.

Video Transcript/Summary: The strategies and tips provided within this video module include:

Make sure the hedge fund manager has a real office.
They use service providers.
They invest in an experienced team.
The have a very strong advisory board.
They have training for their hedge fund employees, after they join.
The systems that they have in place.
They have processes in their hedge fund business documented.
The level of risk management for the hedge fund business is high.
The research that they use to make decisions.
The quality of their marketing materials.

I recently spoke at the GAIM conference in Monaco and many hedge funds were looking for ways to show investors that they consistently invest in their hedge fund business. These ten signs will give you a better idea of whether the hedge fund manager is, in fact, re-investing in their hedge fund business.

Transcript of Hedge Fund Business Investment

Hello, this is Richard Wilson and welcome to this short video on 11 signs that a hedge fund manager is reinvesting in their own business. I’m coming to you from Nice, France today where I was in town recording some training videos for the hedge ground and I just spoke in Monaco, next door, at the game. I had a conference with about 800 people there. And it was really interesting a while there. It was obvious that both hedge fund managers and family offices attending were very interested in knowing more about how to reinvest in their business the right way and how to make it obvious to investors or the hedge fund managers taking their business seriously and really reinvesting in their own business and taking it as something that, you know it was long-term venture and not something they’ll set up and try to make a million dollars in one year.

So the first thing they should look for is to make sure the hedge fund manager has a real office and that they’re not just running the fund out of their house or their garage. You know if somebody is taking their seriously they may have rented an office space or have an office for their employees as their fund grows. The second thing is they have service providers. Many times people try to do their own fund administration when they’re starting up but they don’t have a time broker to start with. If they’ve taken their hedge fund seriously and spoken with people they know, they have to have certain service providers in place. They should have an auditor, they should have an accounting firm, they should have a current brokerage firm, they should have a fund administration firm, they should have an attorney they go to, a compliance legal expert. If they don’t have those things in place, they haven’t done the very basics.

The next thing is team. This is the most important thing. If they have really taken their hedge fund seriously, they’re invested in their team. They have people with great experience, 7-10 plus years experience on their team and at the very least a very strong advisory board. Advisory boards just take a lot of work and creativity. If somebody doesn’t have a strong advisory board in place then it’s really hard to believe their taking their hedge fund business very seriously unless they’ve just started out and they have great bench experience on their team. That’s the only excuse they could find for not having a great advisory board in place.

The next sign is someone who has invested in their hedge fund is that they have training for the employees after they joined. In the hedge fund industry everybody values experience like gold until you come in the door and then almost nobody trains their current team. That is non-sub $1B hedge funds. Lots of large hedge funds do train their team consistently and very thoroughly. But most hedge fund managers under a billion dollars have no training systems in place for anyone on their team, which is I think really ironic given how valued a hedge fund experience is in our industry.

The next sign is someone who has invested in their hedge fund is the systems they have in place, the technology, the trading systems, the reporting systems, how everything flows through the business. You can really tell if it’s really segmented and not working well but how quickly people respond to requests for certain type of data and that you can just really tell someone has reinvested in how they run their business based on their technology and the reporting and trading the systems they have in place.

Next for your tips include having processes. All of the procedures and processes in your business should be documented so that when a new employee comes into the hedge fund, they just look at what processes are related to their responsibilities, they know how things are supposed to be done, everything in the hedge business should be done systematically, almost nothing is done only time. There should be a process for doing everything. In this way if you needed to replace someone on the team or God forbid, the principal of the hedge fund dies, the hedge fund can still move on and follow the same investment process, the same risk management techniques and the same capital raising strategies.

The last few tips here, the level of risk management in the firm, if somebody takes a lot of research, hard work and reinvestment in the business, you know had a very elementary risk management techniques just in how they chose securities, there’s really not enough to cut it anymore. They need to manage operational risk as well as portfolio risk in many different types of ways. So if the manager is not, then that’s a big sign they haven’t reinvested in their own business enough.

The last two tips. They research they use to make their investments, the experience on their team, how do they make their decisions, what’s the quality of information coming into those decisions, and lastly finally is the level of quality of their marketing materials. If their marketing materials looks like a college project or a high school then that says one thing, if their marketing materials look like something from Wall Street, coming out of Merrill Lynch or Goldman Sachs, it says something completely different.

So just to review real quick, the top 10 things that show the hedge manager is reinvested in themselves included their office space, their service providers, their team, their training for their team, their systems, their advisers or board of advisers, their processes and procedures, their risk management, their research and their marketing materials.

This is Richard Wilson. Thanks for joining me. I’m here in Nice, France and we’ll see you next time.

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