Monday 25 June 2012

Co-Opting Marketing Resources for Hedge Funds - Part Two

Preqin - Building On A Database 

The previous and following articles in this series cover lead generator companies in the hedge fund business who make great efforts to explain that they are not database companies. Preqin is a database company that is trying to add some value beyond that restrictive label, so is coming from a different direction from the other two series subjects, Murano Systems and Brighton House Associates.

Preqin provides data and information on the private equity, real estate, hedge funds and infrastructure sectors. The company started in London in 2002 by making efforts to track private equity information (hence the name) – deal flow, terms, funds, and investor activity. The market intelligence gathered was turned into publications and a database. It was the investor activity that led to Preqin collecting hedge fund related information – there was a lot of overlap among the investors in private equity and hedge funds.

Preqin collated the information the investors (investing institutions, endowments and family offices) gave them into their core hedge fund product, which is a database they call Hedge Fund Investor Profiles. Most alternative investment databases that are sold to marketers are lists of potential targets for the marketer’s product.  And the usual database/list/directory does not make much effort go beyond being a database of contacts.

A contact database typically would have a cursory company profile on a list of targets i.e. North American Family offices.  This data can be found in the public domain from phone directories to websites, and the value of a contact database is that a company or person has taken the time to gather up the data and break it into specific lists or categories.  The value is in the aggregating of the data.  The company profile might have a company name, address, phone number, general area of interest, perhaps some historical information, and the name of the acknowledged head of the organisation.


A Refreshed Contact Database

The Preqin hedge fund database is different from the typical directory-like contact database because it is refreshed on an on-going basis, and carries time-sensitive information. A directory of investor names you can buy relatively cheaply on the internet is an accumulation of all the information gathered to that point – it is a snapshot of standing data and information. Some of the information will be fresh, some will be quite ancient.

Preqin have a dedicated team of analysts proactively contacting industry professionals, monitoring regulatory filings, making FOIA requests and tracking news sources to make the their data and information on all firms, investors and service providers  up to date. The analysts speak to investors at least twice a year, and try to make contact with the larger investors four times a year.

The analysts ask investors in hedge funds what their investment plans are for the next twelve months.  There are two levels of interest captured on the database - actively looking now and tracking a strategy. The information held on the Preqin database is always first-hand, and because of the contact frequency, unlikely to be more than six months old.  This is important in a couple of regards – the investment strategies sought and followed will change over time, and the staff doing the seeking and following will change. Each month around 400 database entries are updated.

Then there is the breadth. Because of the resources applied – 25 to 30 analysts in total – and the period over which data has been gathered, Preqin has a database of investors in hedge funds which is as extensive as any. A directory or list of investor names by category might run to a few hundred fund of hedge funds or pension plans. The Preqin database has 3300 investing institutions, and the firm is currently adding 500 new names a year. For example, at the moment the firm is engaged in a project to identify and contact Foundations, in the process 70-80 names are being added each month.

Of the three providers covered in this series of articles Preqin has the most finely tiered offering by price. At the top of the range is the Premium version of Preqin’s Hedge Fund Investor Profiles.  This gives complete access to all data held for $4,250 p.a. and lists the name, type of investor, background, location, assets under management, current and target allocation to hedge funds, current areas of interest by location and strategy, description of investment plans and key contacts of the investing institutions.

Only the Premium product is downloadable to Excel or the in-house CRM of the client, and can be accessed by 5 users. The Premium product contains consultant information – who works for whom. This is considered essential information in the current hedge fund marketplace as a large part of the industry’s flows are now either mediated by a consultant or advised by consultants.  So hedge fund managers looking for the bigger tickets will buy the Premium version of the Preqin Investor Profiles. As it is, about 70% of Preqin’s clients for hedge fund products take the Premium product.

The Standard Access to Preqin’s Hedge Fund Investor Profiles costs $2,150 p.a. and it enables users to search for investors by location (e.g. list all endowments and foundations in Toronto, Canada), and find investors with specific investment plans (for example, ask who is interested in investing with hedge fund of funds). Another feature is that users can view investors by firm: that is, view which Investors have previously invested with particular hedge fund managers. This can help indicate the biases and investment style of potential clients. So a pitch can be tuned to the sort of thing that the potential investor is known to like, and the fund can be differentiated from unsuccessful investments in the past in the same investment style.

The Standard Access comes with a couple of compromises compared with the Premium Access service of Preqin. The database can be interrogated but not downloaded or linked to a CRM system, and only one user can access the database at a time.  The top-tier of investors on the database can be separately purchased in the form of the Preqin Hedge Fund Investor Review, which is an annual product. The 2012 edition features profiles and analysis for the 1,000 most important investors in hedge funds worldwide, and is keenly-priced at $795. The Review contains listings of investors with a preference for the 10 most important fund strategies.


Entry Level Products

Preqin offer a couple of entry level products: the Emerging Manager Download and the Fund of Funds download, both priced at a great value $1000 one-off cost.

The Emerging Manager Download contains contact details for over 890 institutions that have expressed an interest in investing in emerging managers, making the Emerging Manager Download an excellent way of targeting the high potential investors for a smaller fund. Investors include the full array of hedge fund of funds, public pensions, endowments and family offices and foundations. This Excel download contains details on nearly 3,000 specific contacts at investing institutions including name, position, e-mail and telephone number – sufficient to ensure a new hedge fund manager can contact at least a colleague of the relevant person.

Historically funds of funds have been the biggest allocators to hedge funds and are a necessary investor base for hedge fund managers to hit to raise capital. With the Preqin Fund of Funds download of over 600 allocators the marketer or PM of a hedge fund can searched by strategy, location and typical investment size to pinpoint the firms who may be interested in their vehicle.  The Fund of Hedge Funds Excel download contains contact details, including direct phone number and email address, for more than 2,300 individuals at the 600-odd multi-managers from around the world.  As the firms listed range in size from $10 million to $60 billion they will vary from the nimble to the lumbering, but filtering of the list by individual strategy, region and typical investment preferences tags should throw up a very workable long-list of potential investors.

Preqin has also recognised the increasing influence of consultants to flows in the hedge fund industry in its product range. The Premium version of Hedge Fund Investor Profiles contains consultant information, and in addition there is a dedicated product – the Preqin Alternatives Investment Consultant Review ($695). The 2012 edition contains profiles for over 350 different investment consultancy firms.

Consultant profiles within the Review contain information on the types of services offered, asset classes covered, key financial information, direct contact information for relevant contacts and details showing which consultants are being retained by 1,560 institutional investors from around the world. The review identifies key trends in the consultant universe plus information on the market’s make-up.  Of particular relevance for owners or marketers of single manager hedge fund businesses the Review shows which firms operate a buy-list, which firms consider first-time managers, and what they look for when considering new opportunities. The Review is also relevant to investing institutions looking to benchmark their current consultants or to investors considering the services of consultants.

The other directory-like product from Preqin is the Sovereign Wealth Fund Review, which costs $595 and provides a detailed analysis of sovereign wealth funds and their activity in all different asset classes. The Review contains useful analysis plus full profiles for over 60 sovereign wealth funds worldwide. Of all investors in hedge funds SWFs are perhaps seen as the most desirable – they have stable long-term capital, are professionally managed or advised, and can write very large tickets.

The first article in this series covered lead generator Murano Systems and the next article will feature Brighton House Associates. The final part will also draw some distinctions between the three and how they are positioning themselves, and so will come back to how Preqin is trying to compete more directly with the pure lead generators.

Monday 11 June 2012

Co-Opting Marketing Resources for Hedge Funds - Part One


Murano Systems, A Lead Generator



In one of the coincidences that inspire, recently two aspects of hedge fund marketing came into view. The first was coming across a small hedge fund using Murano Systems, and the second was a White Paper on the different types of hedge fund investors from Merlin Securities.

The Merlin paper (available here) explores how a hedge fund appeals to different types of investors at the various stages of development and maturity of the fund and its management company.  The advantages and disadvantages of each investor type are mentioned.  The growth of the hedge fund assets and its changing investor profile is conceptually illustrated below. 

Source: Merlin Securities


Marketing in Different Phases of the Life Cycle 

One of the challenges these changes in potential demand give those running hedge fund management businesses is appropriately resourcing the marketing effort. The marketing initiatives a start-up needs to take are very different from the resources and ways of operating of a billion dollar multi-strategy mature hedge fund.  In the case of the large, relatively mature hedge fund marketing may consist of relationship management for the most part, with infrequent capital raising in discrete chunks.  To carry out the marketing in this phase of a hedge fund life may require just one senior big-hitting asset raiser and a support team of junior graduates.

Contrast this with an emerging hedge fund manager who cannot afford a big-hitting asset raiser’s base salary to get him or her through the door, and where the marketing resource may consist of a couple of days a month of the portfolio manager’s time and the operations person sending out batches of e-mails.  If the nascent hedge fund manager does not come from a hedge fund background they may not know many investors in hedge funds at all, nor what they look for or how to identify the right ones for their style of investing.  A seasoned marketer would know those things, but the regular fee income of a small fund would not give room in the budget for a marketing professional. For many, the solution to this chicken-and-egg type conundrum is to use some form of out-sourcing in marketing. Two common forms are the third party marketer and lead generators.

In discussion with the marketer at a small start up hedge fund, Fir Post Capital, that runs a few million dollars and has been going six months or so as independent entity, the name of a new out-sourced capability in marketing came up. The fund run by Fir Post Capital is involved in volatility arbitrage, a somewhat esoteric strategy, even in hedge-fund-land. But the managers had an investor meeting with an American endowment the following week. A fund with this profile having a meeting with an American endowment after a few months of trading is most unusual, so the question came, how come? The answer was that Fir Post uses a lead generator, Murano Systems.


Changing the Odds in  Marketing

In the marketing process lead generators are the next iteration on from databases of investors in hedge funds. As the European end of the hedge fund business blossomed 15 years ago lists of investors were likely to come from the first generation of managers and some of the service providers, and were passed on to the new managers.  Lists were traded and used by third party marketers then - the apocryphal “Rolodex and a smile” from Jermyn Street/Dover Street.

Then around 2000-1 a manager might get a spreadsheet with a hundred names on it from a prime broker’s cap intro team, plus some names from their mates in broking. And just after that time the first rankings of the world’s largest funds of funds businesses came out, giving a basic though un-targeted starting list. Eventually commercial databases and directories came along.  From a broad hedge fund database, the sub-set of funds of hedge funds could be extracted from Investorforce, hedgefund.net or Tass.  Even now you can find sellers of directories of investors in hedge funds on the internet.

But both the database and the list are passive, and, in a crowded marketplace of nearly ten thousand hedge funds, the passive approach to identifying investors has been succeeded by the lead generators - Murano Systems, Brighton House Associates and to a degree Preqin.

The argument goes that there are in the region of 40,000 investors in hedge funds in the world, and although cold calling can produce results in many spheres of commercial activity, the hedge fund business is not suited to that approach. Many investors in hedge funds can be as remote as the founders of major hedge fund groups (like King Street) in which they invest.  Rather relationships are seen as being of particular importance. 

Personal contacts are what third party marketers (3PMs) utilise in their efforts to sell hedge funds, but the lead generators are critical of the capacity and scope of 3PMs. There are hundreds of 3PMs, but “two-thirds are no good”, according to an executive at a lead generator.  They say that each individual working as a third party marketer can actively manage only a hundred contacts, everyone else on their 500 list of contacts is a tired data-point rather than reflecting an up-to-date active dialogue. 

The in-house marketing efforts of an emerging hedge fund may be limited to part-time human resource and a long list of investor names from a database. At the emerging manager stage 8/10 funds are using Excel spreadsheet as a sales organiser, with all the pitfalls that entails. There are several very good CRMs that mesh with Outlook available that have been specifically designed for hedge funds. But they cost from upwards of $12,000 per annum, and do not come with client/potential client data loaded. Recent survey data from Citi suggests that large hedge funds spend $35,000 a year on a CRM and $150,000 per year on data for the CRM.

Research suggests that in the hedge fund industry the all-in cost of acquiring clients is as much as $15-20,000 per account for true business development. A start-up or small hedge fund cannot compete with an in-house systematic resource like that, and will have difficulties turning a list of many unknown potential investors into a hot list of engaged potential clients. Lead generators are solutions to those two problems.


The Next Iteration in Marketing

A new entrant is Murano Systems, a spin-off of management consulting firm Perfecta Partners. Ole Rollag CEO of Murano Systems is keen to describe how they are in the process of changing the business model of hedge fund marketing. “Using external professional marketers, even a network of 3PMs in different territories, is a reversion to a hub-and-spoke mode that reflects a cottage industry approach. We offer an industrial scale way to finding the right sort of investors for a hedge fund,” he explains.   Murano, in common with its competitors, aims to qualify the client but to a very detailed, fund specific level. That is, facilitate the fund being put forward to investors who are actively engaged in trying to find a hedge fund of a particular type and characteristic. 

Murano is keen to differentiate its offering: “We are not a database company,” says CEO Rollag. “Our core business is identifying investors that are potentially interested the specific characteristics that our fund clients have on offer. Since we offer a premium service, we allow our clients to have access to the database that pertains to their strategy. They may download all of it for use as long as they respect our restrictions- no bulk emailing or transfer to third parties. We are akin to a dating or matching service that charges the clients (funds) a subscription fee. The ultimate goal is to stop disintermediation, bulk emailing, and annoying the investor with inappropriate funds. If we can understand the investor and their requirements, then our client can approach a select number of investors that have specific requirements:  we find high quality leads for hedge fund managers to act on themselves.” Murano reverses the traditional process of waiting for investors to find managers.

The key human component of the service is the team of analysts – bright, engaging graduates who through 25 completed calls a day keep in a regular structured dialogue with investing institutions. So between them they know what current/prospective demand by strategy is going to be, and who specifically will have it. The same analysts use the fresh demand information they have collected, collated and stored to provide sales/marketing leads to hedge fund managers.

The service typically delivers 3-5 leads a week to hedge fund managers, though less for an esoteric strategy.  The leads are end investors in hedge funds that have disclosed to the researchers that they have are active in looking to allocate to a particular investment strategy, say, convertible bond arbitrage or long/short equity healthcare. The hedge fund marketer or manager will receive their leads in a couple of forms – via a phone call from their account executive at Murano, and in e-form (an e-mail and update of the managers’ own CRM).

Rollag is keen to emphasise the service focus of the Murano offering.  What is standing data in a database is refreshed in this approach – so by its nature it is a constantly-renewed, targeted offering.  In a trial period the potential client will receive the same level of service as a full client – all the analysts are in the loop for communications out, leads are sent in the usual way, and the analyst/client dialogue takes place at least a few times a week. And as such it is subject to service level reviews – a dialogue with clients on how it is going every quarter or so.

From the hedge fund managers’ perspective the marketing spend can be both known and a management control variable. It is easier to vary the budget for a service used than to dynamically manage the human resource needed in marketing a hedge fund. An in-house or independent marketer gets paid for capital flows in; in the case of Murano and their competitors the client pays for the leads rather than the conversion.  In concept the service delivers a higher quality prospect of raising capital with a high degree of management control and influence, which can be very important for entrepreneurial and demanding owners like hedge fund managers.

In Part Two there will be a look at Preqin’s offering – building from a database.  


PLEASE NOTE THAT THIS SERIES OF THREE ARTICLES WILL BE THE LAST POSTED ON THIS PLATFORM. THIS SERIES IS ALSO APPEARING ON THE NEW WEBSITE WWW.HEDGEFUNDINSIGHT.ORG