Wednesday, 28 September 2016
Last updated 2 hours ago
Sep 24 2012 | 2:25pm ET
With a host of major rule changes and continued fundraising difficulties, it's no surprise that the regulatory and capital-raising environments took center stage at the FINforums Annual Hedge Fund Summit in New York on Thursday.
Rothstein Kass partner Gary Kaminsky warned that the Securities and Exchange Commission is about to become much more aggressive in its enforcement and hedge funds need to be prepared. Sadis & Goldberg partner Ron Geffner, a former SEC attorney, advised funds to hire competent compliance officers—and if they can't afford a competent compliance officer, to outsource one.
The lifting of the ban on hedge fund advertising, with rules governing general soliciting expected in October, was greeted with cautious enthusiasm. Eric Lazear, head of operational due diligence at FQS Capital Partners, said the change will have a bigger impact on larger funds, which have budgets for marketing. Smaller firms, he said, are more concerned about filing their Form PFs. Mitch Ackles, head of Hedge Fund PR and president of the Hedge Fund Association, said hedge fund advertising would be more of an exercise in brand-building than in soliciting investment.
When it comes to raising capital, advertising ban or no advertising ban, fledgling managers will continue to turn to funds of funds and seeding firms. But before they do, said Rachel Minard of Minard Capital, they should ask themselves three questions: "Can you defend your conviction? Can you defend how you arrived at your conclusion? Can you tell the truth?" According to Minard, a manager's job is to explain the market inefficiency he or she plans to exploit and to show how that strategy fits into the potential investor's overall portfolio.
Michael Marcus of Prelude Capital advised emerging managers to build their networks organically, working their connections: "If you can't raise money from the people that already owe you, it's going to be a hard slog," he said. Alan Glatt of Protocol Capital Management, advised would-be hedge fund managers to ensure their marketing books are complete; incomplete CVs and incomplete risk management are a "big turnoff," he said. David Katz of Larch Lane Advisors says he views seeding like a marriage proposal, "We spend sometimes a year to two getting to know a manager before we seed them."
But PAAMCO's Anne-Gaelle Pouille had some words of encouragement for smaller funds: "We work a lot with managers who haven't formed their management company yet," she said. "[They] are highly experienced, but don't have track record." Moreover, she said, "We write tickets north of $100 million. We'll be 90% of manager's assets, we don't have a problem with that."
But the final word on attracting seeding capital goes to KStone Partners' Mark Kenyon who said the key to unlocking one of those "north of $100 million" tickets is still simple: “Perform well."