Raising capital is one of the most difficult aspects of launching an emerging fund. Many managers with exemplary pedigrees and outstanding track records are nonetheless unsuccessful in their efforts to identify and approach the right capital sources. We advise our fund clients on the legal and business aspects of raising capital. As a professional courtesy to our clients, we also provide introductions and resources to guide them toward capital sources that we have found to be effective for emerging managers.
Our firm has developed relationships with a number of funds of funds that have investment strategies focused on identifying undiscovered emerging hedge fund managers. These funds actively look for new managers that have solid performance and promising strategies. Allocations from emerging-manager focused funds of funds necessarily involved concessions on investment terms, but for the right manager can be an effective way to reach a critical mass of assets under management to attract additional capital.
Additionally, we have relationships with a network of prime brokers, capital introduction platforms, placement agents, and other investment marketing professionals that have been successful in helping raise capital for emerging funds. We guide our fund clients through the process of selecting appropriate investment marketing professionals.
In addition to seeking capital through third parties, fund sponsors should plan to spend significant time reaching out directly to funding sources both inside and outside of the manager’s existing professional and personal networks, particularly to those sources with a particular interest in the fund’s investment strategy. To help guide our clients to appropriate funding sources, we provide them with access to a number of robust investment lead databases, which are maintained by an emerging manager fund-of-funds within our network. These databases include thorough contact information for various capital sources, including: family offices, seeders, endowments, advisors and others.
“There are significant risks involved in marketing a hedge fund, both from a regulatory and investor disclosure perspective. Care must be taken when conducting marketing efforts to avoid running afoul of regulatory restrictions and overstepping disclosure parameters. Legal counsel should be involved at each step of a fund’s marketing process.
In addition to the legal issues involved in marketing a fund, there are practical, business considerations that can be outcome determinative when launching a fund. In our work with funds of varying sizes, backgrounds and strategies, we have seen a number of factors that influence a fund’s marketing success. This white paper addresses both the legal and business issues that fund managers should deal with when raising capital for an emerging fund.”