Chronic difficulty and failure raising assets: Why 89% of all hedge funds never get over $100m

Chapters: 00:00 - Intro 00:31 - 27 years in the alternative 01:53 - Smaller manager’s existential 03:30 - The three principal mistakes 05:18 - Underestimating “the length of the runway”: 07:41 - Quantifying the U.S. family office 12:40 - Three critical areas managers should focus on: 15:37 - How to save 90% of marketing costs: 19:38 - The two top line considerations of family offices 23:21 - Not doing enough: 26:15 - Avoiding the FIFO allocation 31:23 - Fund manager hire a dedicated marketer? 41:13 - Will posting returns 43:30 - Small minority of funds Bryan Johnson has worked for 27 years in the alternative investment business, first as a portfolio manager for two family offices, then as founder of a family office consultancy where he worked with about 63 families investing $3 billion in private equity and hedge funds . Since 2010 he helped over 300 smaller fund managers with the holistic challenge of formulating and implementing appropriate marketing processes. With 9 out of 10 managers failing to grow over a $100m assets, smaller managers face an existential marketing challenge. The average asset size of funds liquidated in 4Q14 was $76m one year prior to closing. Johnson believes that the primary reason why most managers do not get over the hundred million hurdle is not because of poor performance, but because of poor marketing. And the problem behind that is that most managers do not have a structured, disciplined and focused marketing process to articulate not only their investment processes, skills and ability to generate sustainable ALPHA but enterprise-wide processes, operational strength and execution blueprint to the right investors. Managers should honestly reflect about their outreach procedures and aim to avoid the “unstructured, ad-hoc and inappropriate” marketing behavior that unfortunately seems to have become the norm and leads to chronic difficulty and failure raising assets. Most founders also tend to underestimate “the length of the runway”, i.e. the temporal expansion of the allocation process, particularly since the credit crisis. Gaining the attention of the right investors is a huge challenge, while at the same time investor due diligence has grown exponentially, leaving many managers overwhelmed to the extend that Johnson actually talks out 25% of them from starting a fund business. Not everyone is ready for Johnson’s tough coaching, and many founders waste two years before they realize they don’t do a good job in building their business. However, the small minority of funds that adopts the right marketing process early on have demonstrated they are able to raise four times more money than the top performing funds. In this Opalesque.TV BACKSTAGE video, Johnson also speaks about: How to save 90% of marketing costs Three principal mistakes that can lead to a fund’s early death plus three critical areas managers should focus to develop their business Quantifying the U.S. family office and high net-worth investor landscape: Over U.S. 55,000 individuals and families (net worth of $50m+) managers fail to identify and engage with Where high net-worth and family offices really look for managers How family offices select their investments: The two top line considerations of family offices How does an investor-centric marketing process look like? The 2-2-1 Strategy 40 BPs versus 70 BPs: Most managers don’t know their costs of raising assets from private wealth versus institutions and generally underestimate what’s involved to get allocations How many meetings are required to get three to five allocations? Why performance is not a retention strategy When should a fund manager hire a dedicated marketer? Are third party marketers an option for smaller managers? “Spray and pray”: Will posting returns to a commercial database attract investors? How managers can avoid the FIFO allocation (first in, first out) How to identify service partners: smaller managers need service partners, not service providers. Bryan Johnson is the founder of Johnson & Company, a marketing consultancy for sub-institutional hedge funds and alternative asset managers. Before that he worked as a portfolio manager inside of two family offices. He also founded and ran for 12 years a family office consultancy where he worked with about 63 families and about $3 billion in private equity and hedge funds. Johnson initially came to Texas as chief expert witness and lead consultant for The Attorney General of Texas and The State of Texas in the evaluation of hedge funds and private equity firms in the acquisition of the assets of Texas Genco in the multi-billion dollar true-up of Centerpoint Energy (CNP:NYSE). He then became global head of the alternative investment group at Moody’s where he was involved with the deployment and global distribution of an operational risk product to large hedge funds like SAC, King Street, Millennium, Fortress, Marshall Wace, Brevan Howard.