Monday, 26 September 2016
Last updated 2 days ago
Oct 4 2011 | 9:47am ET
For hedge fund managers, access to investor capital is often the biggest obstacle to the success of their fund. In today’s market, capital raising is also one of the easiest ways to rise above the competition—by simply outgrowing them. Victor Park, founder and chief executive officer of Alternative Assets, is part of a new, institutional breed of hedge fund capital raisers. Additionally, each year, Park organizes the Alternative Asset Summit, a collaborative networking summit in Las Vegas. He spoke recently to FINalternatives about the role of capital raisers and what they bring to the hedge fund industry.
What does a capital raiser offer a hedge fund manager?
A capital raiser offers a hedge fund manager valuable connections and relationships that take years to develop. Because of these long-term relationships, a capital raiser can maximize the periods of marketability for a given fund. This is an important concept most managers miss. There will be maybe two such periods a manager may capture during the three-to-five-year average lifespan of a hedge fund. The opportunity lost by hiring an inexperienced marketer who will take those years to develop investor relationships means a manager could find himself less than optimally positioned to raise capital during one or both of these periods of marketability. The highest barrier to success in the hedge fund industry is getting someone credible to represent the fund in order to better monetize allocation cycles in the business.
Also, there is the packaging expertise. It’s surprising how often I come across a manager who can’t articulate a clear investment philosophy. When you hear a skilled manager speak, he’s full of sharp insights and supports these by using data points that culminates in what I call ‘an alpha thesis.’
What sort of hedge funds utilize capital raisers? Why?
A few large managers control the majority of the capital in the industry; capital raisers facilitate capital flows to the rest who are either beta plays, or constitute dynamically growing and performing alpha generating platforms.
No matter how well a hedge fund manager thinks he understands his limited partners and would-be LPs, his experience is not going to match that of a capital raiser who is in constant touch with investors across various investor segments. It is not always clear how institutions think top-down, but a capital raiser should know exactly who to speak to and have an idea of how investors are disposed towards a given strategy. For general partners, the alternative is cold-calling investors, an unappealing and time-consuming activity that keeps partners away from their primary investment duties.
What do you look for in a manager you represent?
A lucky guy. I look for productive karma. Or, I try to pick up on a vibe or some sort of rhythm. Believe me, I know a lot of hard working guys, a lot of smart guys and a lot of creative and resourceful guys…ultimately, if you told me for a fact you had a lucky person, all things being equal, I'd hope to represent him. Or, I look for managers that appreciate packaging and capital raising—those that want or accept the need to be part of the process for the right client, they and I are one. Tension or not, I hail for them; I’m constantly thinking about their project.
How would you deal with a stalled manager?
I would spend time with the manager on a personal level and just delve into what’s really going on. Courses of action might include either the rehabilitation or the repositioning/new product development route. As opposed to new managers, most investors don’t mind a restructured story like, “Yes, he was arrogant—but he didn't gate or suspend or side pocket and now he’s humbled and even more motivated.”
What is the future for capital raisers in the hedge fund industry?
The industry seems to be homogenized with respect to hedge funds due to similar performance and products. In the future, superior capital raisers will optimize their relationships across numerous products and services. Hence, success-based compensation and/or free agent capital raising platforms will expand—you see this eat what you kill dynamic in Hollywood, sports, private equity, and venture capital, where the bulk of success is generated by independent agents.
Also in the future, hedge fund capital raisers will gravitate toward not calling with a product, but instead having ideas and top down views along with a better understanding of why the investor should look at a manager and potentially invest in the fund.
Additionally, investors are turning over and diversifying their holdings and investment horizons across many hedge funds via core and tactical allocation investment philosophies. The last cycle exposed how a given investor had been invested or concentrated in relatively few funds.
What advice do you have for people looking to break into the capital raising industry?
Take a humble approach; there's definitely a learning curve and a relationship/networking development cycle. I see of lot of new entrants to the hedge fund industry expecting to make a big splash immediately without having any existing relationships or knowledge. They tend to take contemptuous attitudes to existing asset allocation professionals referring to them in a derogatory manner as ‘box checkers.’ I’m not sure this sort of approach/attitude is a good one. In my experience, it tends to backfire.
The capital raising space is pretty crowded. You’ve been around for a while. How does your firm distinguish itself from the competition?
Something that sets me apart is that I really understand and appreciate the investor. In this cycle, they run the show. Increasingly, it’s become my job to guide the investor and manager to where things intersect. As we grow, my firm and its various peripheral activities collectively operate as an integrated team. It’s no longer enough to be a hedge fund capital raiser who lands big clients and big paychecks as the average life of an investment is shortening.
Can you tell us something about the Alternative Asset Summit you are holding later this month?
The collaboratively structured Alternative Asset Summit is different than other events in that it is investor-heavy and service provider-light. Investors can attend without having to pay any registration fees. Waiving those fees helps create more takeaways due to the higher sophistication of the audience. This dynamic also creates a higher-quality attendee composition. Further, the summit is largely comprised of friends and friends of friends from connected networks. This makes deal-making and cross-selling easier.