The Ultimate Hedge Fund Salesperson - 3PM - Third Party ...

ReporterReporting on issues for investment professionals in futures,MFAhedge funds and other alternative investmentsThe Ultimate Hedge Fund SalespersonBy Frank J. Carr, Centennial Partners LLCWANTED: The Ultimate Hedge Fund SalespersonHedge fund seeks polished executive with huge Rolodex of investors who actually respect him/her; must be able to travelextensively and turn on asset flows at will; can discuss the details of hedge fund strategies like a world-class portfolio managerand can close deals like a world-class used car salesman; must raise more assets than ever thought possible and mustretain all assets in the face of plunging performance; an ability to deal effectively with neurotic and impatient hedge fundmanagers is a decided plus.Superior investment performancewill always attract itsfair share of investors, but with8,000 or so hedge fund choices,managers can no longer be so confidentthat the money will quicklyfind its way to their door. Enter theUltimate Hedge Fund Salesperson(UHFS) to take a simple stock pickerto the ranks of $1 billion hedgefund managers. Unfortunately, thatjourney can be long and painful ifthe right salesperson is not drivingyour asset gathering train.Now with so manyentrants in the race,raising assets above the$100 million hurdle,before patience andworking capital runout, is the real test ofsurvival.A Scorecard for Your UHFSHarlan Simon, managing director at the Clinton Groupbelieves that “… a good salesperson should be able to takean investor 95% of the way down the path to making aninvestment.” Even with abundant invitations to finals presentations,the managing partner or lead portfolio managermust be willing to pitch in and travel to close deals. If youare not willing to show up in Wisconsin in February andpolitely respond to questions from a large investment committee,then you can kiss thoseallocations goodbye. For smallerfunds, the number of on-site visitsfrom funds of funds analysts or thefrequency of attentive high-networthguests at dinner meetingsare both good indications that theUHFS is doing their job.Capital Introduction atYour ServiceEven the best UHFS can use a littleleverage to reach more investors,which leads us straight to the “CapIntro” floor of our friendly neighborhood prime broker.“There should not be competitiveness between the capintro staff and hedge fund salespeople – they should workin conjunction, as an extension of the sales team,” advisesDavid Barrett, managing director and head of hedge fundorigination at Merrill Lynch. Mr. Barrett, perhaps the leadingoriginator of the capital introduction concept, explainsthat “… the cap intro executive is typically swamped withmandates from dozens of hedge fund managers and invitationrequests to institutional investor conferences. When a

The Ultimate Hedge FundSalespersonThe UHFS Scorecard . . .Professional quality marketing materialsCompetitive positioning of productConsistent prioritization of likely buyersRelationship building with consultantsFluency in asset allocation discussionsInvitations to finals presentationsEfficient use of conference circuithedge fund salesperson comes in and gives a complimentto her boss, then his fund will likely get more attention,” heobserved. Mr. Barrett correctly points out that some hedgefund salespeople are worried about sharing the credit withothers, but maintaining positive relations with prime brokersand maximizing a fund’s asset gathering reach is clearlya better path to success.Picking the Right UHFS for Your FundIn hiring the right hedge fund salesperson, a managershould first delve into the relative strength of the candidate’sdistribution channel experience and determine if thisis a good match for his fund. This should be followedquickly by judging their ability to clearly explain complexinvestment strategies. Listed below is a selection of the likelysuspect investor categories which your UHFS will beincluding in his/her expense report. Of course, the appropriatesales channels and client targets depend on yourfund’s strategy, lifecycle point and ultimate growth goal.Stepping Up to the Institutional Game“Selling hedge fund products to institutions has a longfuse,” confessed one salesman at an established New Yorkhedge fund of funds business. He added that “this is notwriting tickets on a daily basis and the salesperson shouldbe able to articulate that to the boss.” Joe Gieger managingdirector and head of U.S. institutional sales for Global AssetManagement agreed that “the typical institutional salescycle is 12-18 months.” In his opinion, “many hedge fundsalespeople are too transaction oriented – it’s not a quickproduct sell, it’s a relationship sell.”more than just cold callingEfficient distribution channel strategyMaximize capital introduction supportOne leading endowment fundmanager believes that the mostsuccessful hedge fund marketersare able to “articulate the valueadded from the firm’s uniqueinvestment edge, team strengths,risk management capabilitiesand alignment of interests withtheir investors.” This endowmentmanager further advisessalespeople to “always tell thetruth – no need to ring alarmbells on your weaker points but be honest in the spirit andletter of representation.” This would include any significantinformation the investor would want before making a decision.An ability to clearly read the buyer’s decision cyclealong with his or her manager selection criteria are otherkey ingredients in the recipe for institutional asset gatheringsuccess.In the game of managing assets on behalf of institutionalinvestors, the initial pitch is only the beginning of the relationshipand the responsibility. “The first step in the salesprocess is detailed research so that you understand yourcustomer,” cautions Michael Tobin, managing director ofU.S. institutional sales for VegaPlus Capital Partners. “In thefirst meeting, you should not try to sell your product, buttalk about investing in general and explain how your productmight fit into their portfolio,” said Mr. Tobin. The UHFSdoes not try to force a “one call close,” but proceeds tobuild credibility through consistent contact and providingpertinent information which will benefit the investor.Coach portfolio managers for presentationsProfessional client communicationAsset retention during medicore performanceHonest representation of return expectationsCommunicate investor preferencesDistribution Channel OptionsHigh-Net-Worth IndividualsFamily OfficesFunds of FundsFoundations & EndowmentsCorporate Plan SponsorsPublic FundsTaft-Hartley (Union) FundsWirehouses and Private BankPlatformsStructured Product PlatformsInsurance CompaniesEuropean BanksAsian and Other OverseasInvestors

The Ultimate Hedge FundSalespersonDon’t Forget Client ServiceWhile quickly getting assets in the door may be thelifeblood of most emerging hedge fund managers, the UHFSjob description includes sales, marketing, client serviceand other relationship management functions which help toeither increase or retain assets. According to GAM USA’s JoeGieger, “many hedge fund managers have been handlingclient service in a reactive manner, just responding toincoming calls and sending out a brief quarterly report.”He added that “the better (and bigger) managers havemoved to a proactive approach by offering detailed and frequentcommunication whether performance is up or downand anticipating investor questions before being asked.”“We view our head of client relations as a key strategicpartner within the firm,” said Tom Hirschfeld, chief operatingofficer of Halcyon Management Company. “A timely andaccurate flow of information is crucial as is listening towhat clients are saying,” he added. The main message isthat consistent and professional communication will be recognizedand rewarded.Don’t Shoot the Messenger….Institutional StandardsA large part of building credibility with investors involvesthe UHFS advising management as to what the fund must doto meet institutional standards. Cracking the code with U.S.institutions starts with gaining the respect of the gatekeepers.Leading pension consultants such as Russell, Callanand Cambridge Associates, really do care about businessinfrastructure and risk management, so listen closely toyour UHFS when they report back from the field. Most consultantsalso maintain their own database of managers andyour salesperson should make sure your fund(s) are representedat all appropriate firms. At a minimum, a salespersonshould prepare an internal due diligence questionnairebefore setting up institutional meetings – this is now commonand most investors expect it, especially funds of funds.The Key to Long Term SuccessIt’s not a quick and easy game, but the right salespersoncan yield satisfying results and minimize redemptions inlean times. Clinton Group’s Harlan Simon sums it up bysaying: “It is important to develop a rapport with investorsduring the process of bringing them into your fund.Investors who are most likely to stay are often those whopulled the most information from the salesperson duringthe due diligence process. Fast money is a mixed blessingin that it is often fast in, fast out.”In the past, the hardest obstacle when launching a hedgefund was finding the one remaining mountain peak or Greekgod still available for your fund’s name. Now with so manyentrants in the race, raising assets above the $100 millionhurdle before patience and working capital run out is thereal test of survival. Plenty of hedge fund managers learnedthe hard way that to achieve and then maintain a criticalmass of assets, it really does pay to hire an experienced,professional client executive. Hedge fund sales and marketingexecutives should not be viewed as just providing a temporarybridge to reach a particular asset target. The realsurvivors in the hedge fund shakeout will be those whoposition their UHFS as a partner of the firm so that their $2billion mountain of assets doesn’t melt down to an insignificantpuddle. ■Frank Carr is founder and managing partner of CentennialPartners LLC, a Stamford, CT boutique search firm specializingin the hedge fund industry. Prior to entering the executivesearch field, Mr. Carr had been the CFO of a Connecticutbasedhedge fund and had started his career as a commoditiesbanker at Citibank.www.cenpartners.comFrank J. Carr, Managing PartnerCentennial Partners LLCOne Landmark Square, Suite 525, Stamford, CT 06901(203) 487-6171 office, (203) 249-7244 mobile(212) 572-6310 NY Officefcarr@cenpartners.comReprinted with permission from the MFA Reporter January/February 2006 issue.