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Saturday, 21 January 2017
Last updated 1 day ago
Mar 2 2012 | 10:48am ET
Jonathan Willis thinks people who are very skilled at running money are not always equally skilled at other aspects of the hedge fund business.
“There are many funds out there, [managing] $150 million, $200 million, that are set up and run by guys that are excellent at running money but bad at running their businesses,” Willis told FINalternatives in a phone interview.
Such firms, he says, need to attract “long-term, sticky, money,” which basically means pension fund money, and to do so must present themselves in an “institutionally credible manner.” And that’s where Willis’ new firm, Willis Venture Partners, comes in.
Willis describes WVP as a “hedge fund incubator,” but rather than supplying seed capital, it will provide knowhow, partnering with hedge funds to help them attract new investors by reworking marketing materials, evaluating personnel and forcing firms to define and differentiate themselves, among other things.
In return for this, WVP will receive “a small chunk of equity” in the client firm, a seat on the board and a share of “cumulative net new subscriptions that arise from the date of the start of our partnerships.”
“We assume the financial risk in the transaction,” says Willis. “These firms do not have the free cash-flow to bring us in to help them…And so, we’re backing, basically, the value we can deliver. We don’t get paid until they get paid.”
Willis spent the bulk of his career at Barclay’s Global Investors—in roles including head of investment strategy for Europe, head of UK equities and business strategist/manager—during a time when the firm’s European active equity assets grew from $5 billion to approximately $70 billion. Willis says in his work for BGI he met with “hundreds and hundreds” of investors and will bring “deep expertise” to bear in assisting client companies attract capital.
WVP’s ideal candidate client firm is four to five years old, has a staff of eight to 10 people, manages $250 million and has “reasonable investment returns” but has come to the “cognitive realization” that investment turns alone do not guarantee asset growth, says Willis.
The typical WVP engagement will last 36 months and will begin with 5-6 weeks of intense (and mutual) due diligence and contract negotiation. Willis says his firm will “largely know what we’re going to do before we start” and, once an agreement has been reached, will begin doing it—reworking marketing/messaging materials, ensuring firms have “the right people on board,” asking clients to consider what differentiates them from similar funds. After the intense involvement of the first 50 days, WVP’s meetings with client companies will dwindle to 10 days per month, then 1 or 2 days per month.
WVP expects to have four to five clients at any one time and Willis says he’s now “on the streets” meeting with potential partners. His business plan, he says, gives him six to nine months to sign his first client and to date response has been “positive, steady, in line with expectations.”