Emerging managers have always faced challenges getting their firms off the ground. From establishing a track record to building the infrastructure needed to grow, firms are now faced with a new regulatory regime in the US and Europe that puts additional hurdles in their way.
Ian Morley, chairman of Wentworth Hall Consultancy in London spoke with Jim Kharouf, editor-in-chief of John Lothian News at the Emerging Manager Forum in Miami in December about the challenges that emerging managers funds face today. He said that Dodd-Frank and European rules have made compliance and reporting more onerous on managed futures firms and hedge funds, but that is only part of the problem.
In today’s environment, Morley said the “difficulty is in raising the money.”
“In the business world, you usually get 80 percent of your business from about 20 percent of your clients,” Morley said. “In the hedge fund world, with probably 8,000 to 10,000 hedge fund managers out there, probably a couple hundred are raising the money. So it’s incredibly difficult for the start-up managers to raise money.”
Morley said the key for smaller fund manager is to make sure that performance data is up to date and that it is posted with every third-party data provider and research company. That can help firms with tight budgets and limited marketing resources to reach a broader investment audience.
“You’re not going to get out to the analyst in Hong Kong, but that analyst is probably doing data searches all the time,” he added.
Morley also recommends that if you’ve started a fund with some investor funds, to expand that network on a personal level with lunches, dinners, coffee or drinks.
“I’d say to (my initial investor), “I’d like to have a lunch and have you invite a friend who is potentially and economically capable of making an investment. I don’t need you to endorse it or anything, I’d just like you to invite them,’ ” Morley said. “So I’d start on concentric circles, work on people you know and next work on people in the industry who you know have access. Knock on the doors where there is a potential and where it’s logical.”