Articles Tagged with Hedge Funds

Published on:

By

Written by guest contributor, Bruce Frumerman, Frumerman & Nemeth Inc.

This article first appeared in FINAlternatives on January 30, 2012 and is re-printed with permission below.

It’s one thing when people who are not part of the hedge fund investor universe say hedge funds are money management firms that reveal too little about themselves. It’s another thing entirely when those folks investing in hedge funds are complaining about this.

In January SEI released part one of its results from its fifth annual survey of institutional hedge fund investors, conducted in collaboration with Greenwich Associates, The Shifting Hedge Fund Landscape. Three of the recommendations the report offers hedge fund firm owners give a glimpse into where surveyed investors are asking hedge funds to “provide more windows into investment processes and decision-making,” as SEI put it.

SEI says hedge funds need to:

  • Go The Extra Mile To Make Strategies Understandable.

Thoroughly explain the strategies and processes [you] are using to generate returns.

  • Keep Articulating And Reinforcing The Value Proposition.

Demonstrate exactly how [your] strategy and methods are enhancing [your] clients’ risk-adjusted portfolio returns.

  • Clarify Performance Expectations.

Work to help clients understand the tradeoffs between risk and reward, and how [your strategy] can be expected to perform under varying market conditions.

All of this points to a specific failing: most hedge funds are not communicating enough detail about how they think and how they invest. It’s not enough for a hedge fund manager to know this in his head. Further, it’s not enough for a hedge fund sales person to believe she is able to recite all this required information in a verbal presentation at a pitch meeting with a prospect. Institutional investors need to have this in writing. After all, they’ll be referring to a hedge fund’s marketing collateral when, months after a hedge fund has made its in-person presentation, the institution’s investment committee finally gets around to discussing the hedge fund firm and its strategy.

As SEI’s survey makes clear, hedge funds are not building out their storyline content enough to fully explain how they invest, differentiate themselves from competitors and communicate appropriate performance expectations. I’ve identified a reason why this is too often so: taking the wrong starting point. Many hedge fund firm owners go about their internal process of creating their storylines about how they invest by trying to think in bullet points, because that’s what goes into a flip chart pitchbook. That is the wrong starting point and the wrong point of reference. Think this way and you will end up leaving out too much detail about what you do that prospective investors want you to be communicating. Market this way and you may leave some prospects thinking your firm lacks transparency and others that your firm lacks the competence to pull of what you claim you aim to do.

Savvy hedge fund firms recognize that a flip chart pitchbook is a marketing tool, not the only marketing tool. They know that they have to deliver marketing collateral into the hands of institutional investor prospects who may take months before to looking at those documents again when discussing the hedge fund and its strategy in an investment committee meeting.

A flip chart pitchbook is not a leave-behind piece whose copy retells on paper the detail of what a fund manager presents verbally at a pitch meeting regarding the full story of his fund and its investment process. The people you pitch have learned from experience that bullet points in the typical flip chart pitch book rarely tell the full story. In a meeting, the portfolio manager or salesperson usually “fills in the blanks”, adding more information as they elaborate about their firm and its investment process. If you assume all of your prospects are attentive enough to absorb and recall this non-documented content months later, when investment allocation decisions might be made, you are mistaken.

So, how can you do a more effective job of thoroughly explaining your fund’s strategy and process in writing?

Here’s a recommendation for giving your firm a fresh start in this new year: begin by putting onto paper a clean, rethought long version storyline that explains your investment beliefs and details the process you follow to implement your strategy. Once you’ve written this out in sentence and paragraph format reread what you wrote, and try to do so with the critical eye of a skeptical prospect, because you need to construct a storyline to sell with that is buyer-focused, not seller-focused.

Your words need to be cogent and compelling. Keep in mind that people will not be able to follow you if your explanation about how you invests jumps around, so see to it that you build and tell a linear story.

With your new, long version storyline copy in hand you’ll have the baseline content that can be applied to a range of marketing tools. This content can serve as the meat of an in-person verbal presentation. Highlights of the long version storyline can be excised to be added to the data presented in a flip chart pitchbook, and to a fact sheet/backgrounder piece. Importantly, the full content belongs in a document of its own: an “evergreen” brochure that just addresses investment process. This evergreen document should retell in print what you communicate verbally at a pitch meeting for educating and persuading people to understand and buy into how you invest.

How useful is adding a brochure format marketing piece as a selling tool to provide, as SEI puts it, “more windows into investment processes and decision-making”?

Here’s a recent case example from a hedge fund client of my communications and sales marketing consulting firm. Having presented his pitch to a university endowment officer, the fund manager was complimented on his evergreen brochure leave-behind because, as the prospect noted, it fully retold the fund’s investment process that was given in the verbal pitch. That endowment officer added that nine out of ten times he only gets a flip chart pitchbook from those who pitch him, so he often lacks the investment process detail he needs, in an easily accessible marketing piece, for his due diligence. Another endowment team the hedge fund manager met with echoed that feedback. After telling the hedge fund manager they liked how his investment process was clearly spelled out in his 12-page, brochure-format leave-behind, they complained to him about getting too many 50-page pitchbooks from other money management firms.

So, if you want to be in a better position to attract new investors this year, look into how you could do a better job of articulating and reinforcing your value proposition; both with the story you tell and the range of marketing collateral in which you deliver it. Make it easier for your institutional prospects to remember and recount to fellow investment committee members how your firm invests and you will have created a competitive edge in your marketing.

 

#          #          #

© 2012 Frumerman & Nemeth Inc.

Bruce Frumerman is CEO of Frumerman & Nemeth Inc., a communications and sales marketing consultancy that helps financial services firms create brand identities for their organizations and develop and implement effective new marketing strategies and programs. His firm’s work has helped money management clients attract over $7 billion in new assets, yet Frumerman & Nemeth is not a Third Party Marketing firm. Bruce has over 30 years of experience in helping money managers to develop buyer-focused positioning strategies to differentiate them from their competitors; create more cogent and compelling sales presentations and marketing materials to better tell their story; and use media relations marketing and industry conference speaking opportunities to help establish a branded identity for their organization by generating third-party endorsement for the expertise of their people, the value of their services and the quality of their products. He has authored many articles on the topic of marketing money management services and is a frequent speaker on the subject at industry conferences. He can be reached at info@frumerman.com, or by visiting www.frumerman.com.

Published on:

By

Written by Peter J. Chess

Many fund managers are required to submit reports every month and/or every five years to the Federal Reserve Bank of New York (“FRBNY”).  The Department of the Treasury’s Treasury International Capital (“TIC”) data reporting system has two such upcoming reporting deadlines.    

TIC Form SLT

The Aggregate Holdings of Long-Term Securities by U.S. and Foreign Residents (“TIC Form SLT”) is required to be submitted by entities with consolidated reportable holdings and issuances (positions) with a fair market value of at least $1 billion as of the last day of any month.  These entities may include funds and their investment advisers, and U.S. companies.  The purpose of the TIC Form SLT is to gather information from U.S. resident entities on foreign persons’ holdings of long-term U.S. securities and on U.S. persons’ holdings of long-term foreign securities. 

If required to do so, fund managers and other entities must submit the report to the FRBNY by the 23rd day of each month with regard to the data of the previous month.  The upcoming TIC Form SLT will contain consolidated data as of December 31, 2011 and must be submitted by January 23, 2012. 

TIC Form SHC

The Report of U.S. Ownership of Foreign Securities, Including Selected Money Market Instruments (“TIC Form SHC”) is a mandatory survey of the ownership of foreign securities, including selected money market instruments, by U.S. residents as of December 31, 2011.  The TIC Form SHC is a benchmark survey of all significant U.S. resident custodians and end-investors held every five years. Custodians are all organizations that hold securities in safekeeping for other organizations.  End-investors are organizations that invest in foreign securities for their own portfolios or invest on behalf of others, such as investment managers/fund sponsors.

The TIC Form SHC is divided into three schedules: Schedule 1, Schedule 2, and Schedule 3.  Schedule 1 must be filed by all entities that are notified by the FRBNY that they are required to file the TIC Form SHC, and by all U.S. resident custodians or end-investors that exceed the reporting thresholds of Schedules 2 and 3.  Schedules 2 and 3 must be filed by entities that exceed the reporting threshold of $100 million for the respective specified safekeeping arrangements of foreign securities.

The data for the TIC Form SHC is as of December 31, 2011, and must be submitted by fund managers and other entities required to do so to the FRBNY no later than March 2, 2012.  

Published on:

By

Date & Time
11/10/2011
12:30 pm – 7:00 pm PT

12:30 pm – 5:30 pm PT
Workshop
5:30 pm – 6:30 pm PT
Panel and Q&A
6:30 pm PT
Cocktails

Location
Pillsbury’s SF office
50 Fremont Street
San Francisco, CA 94105

Join us for an interactive, instructional workshop to learn step-by-step how to create unique and individualized marketing material to attract and engage investors and raise capital.

Who Should Attend:

  • Emerging Funds Managers
  • Established Funds Managers
  • Hedge Fund Marketers
  • Pre-Launch Managers
  • Fund of Funds Managers

This one day hedge fund marketing event will cover:

  • How to uncover or rebrand your fund identity
  • Defining your marketing message and how to tell it
  • Understanding who your potential investors are
  • How to avoid compliance pitfalls
  • Discovering opportunities that raise capital
  • What investors look for in marketing collateral

and much more…

Presented by
Maital S. Rasmussen,Founder & CEO, Rasmussen Communications, Inc.

Speakers
Ildiko Duckor

Guest Speakers
Rikke Jorgensen, Copywriter, Rasmussen Communications, Inc.
Seavan Sternheim, COO, CMO, QM Capital, LLC

Investor Panel and Q&A Session
Kermit Claytor, Fund of Funds Manager, Skyline Partners
Paul Perez, CFA, Springcreek Advisors, LLC
Ildiko Duckor, Counsel, Pillsbury
T. Jon Williams, Ph.D., CFA, South Avenue Investment Partners

Early Bird$675 for one participant
$975 for two participants
Early Registration ends October 27th, 2011

Regular Price$750 for one participant
$1,050 for two participants

To register, please visit Rasmussen Communications.

Event Contact
Jessica Slater

Sponsors
100 Women in Hedge Funds
California Hedge Fund Association
Rasmussen Communications

Published on:

By

Written by Jay Gould

The Pillsbury Investment Funds Team has over the past month reviewed several new Due Diligence Questionnaire (“DDQ”) forms on behalf of fund manager clients from institutional investors and family offices that contain a new inquiry that is potentially problematic for certain fund managers. Generally, this new inquiry requests information regarding any dispute over fees that the manager has had over a specific time period with certain service providers for the fund and the general partner of the fund. In its typical form, the question asks:

During the past three years, have you [the fund manager] or a controlled affiliate, had any amounts in dispute with or refused payment to any third party marketer or sales agent, any public relations firm or individual conducting a similar function, or any law firm or legal representative?

The DDQ goes on to request additional information about each disputed payment and requests permission from the fund manager for the potential investor to contact the service provider named with respect to the disputed fees. The Pillsbury Investment Funds Team found this question interesting and potentially troublesome and contacted one of the institutional investors with respect to this inquiry. We were informed that this particular investor was concerned that fund managers that do not honor their obligations to service providers are often the same ones that take a broad view regarding the services can be “soft dollared,” manager expenses that are chargeable to the fund, and creative calculations of management and performance fees. We were informed that these particular service providers to fund managers are often not in a position to pursue fees in dispute due to the potential public relations disaster such an action would cause to the allegedly aggrieved party. Or put another way, if a third party marketer brought an action against a fund manager for fees due on assets raised on behalf of a fund, what fund manager would ever retain that marketer again? Institutional investors are also concerned about the continuity of service providers and any pattern related to why high or constant service provider turnover. It is worth noting that auditors are not generally included in this type of question because changing auditors and the reason for it is covered in a separate inquiry. It is our understanding that this addition to the DDQ is gaining popularity among institutional investors and family offices and that follow up on the information provided in response to the inquiry is being conducted.

This development raises several potential issues for fund managers that are asked to respond to this inquiry. First, all responses to DDQs and other “marketing” materials are subject to the fiduciary standard set forth in Investment Advisers Act Rule 206(4)-8 which was adopted in 2007 in response to the Goldstein decision. Rule 206(4)-8 applies to every investment adviser, whether or not registered, and imposes a strict liability fiduciary standard on information that is provided to investors and potential investors. Accordingly, to the extent a fund manager refuses to answer the DDQ or does not answer the question fully and truthfully, such manager faces a potential violation of Section 206 of the Investment Advisers Act, which is a very serious offense. Additionally, to the extent a potential investor seeks to obtain information regarding legal fees in dispute, fund managers should be aware that they are being asked to waive the attorney client privilege with respect to this aspect of the relationship with their attorneys. Fund managers should seek to condition disclosure of this information on confidentiality, however, it is likely that such information could still be obtained from the investor by way of a subpoena from the Securities and Exchange Commission, a state regulator, or even a third party litigant.

Published on:

By

Written by Jay Gould

On October 26, 2011, the SEC adopted a new rule requiring SEC-registered advisers to hedge funds and other private funds with at least $150 million in private fund assets under management to report information to the Financial Stability Oversight Council (“FSOC”) to enable it to monitor risk to the U.S. financial system.  The information which must be reported to the FSOC on Form PF will remain confidential, and not accessible to the general public.

These private fund advisers are divided into (1) large private fund advisers and (2) smaller private fund advisers.  Large private fund advisers are advisers with at least $1.5 billion in hedge fund, $1 billion in liquidity fund, and $2 billion in private equity fund assets under management.  All other advisers are regarded as smaller private fund advisers.  The SEC anticipates that most advisers will be smaller private fund advisers, but that the large private fund advisers represent a significant portion of private fund assets. 

Smaller private fund advisers must file Form PF once a year within 120 days of the end of the fiscal year, and report only basic information about their hedge funds, private equity funds and/or other private funds, such as information regarding size, leverage, investor types and concentration, liquidity, fund performance, fund strategy, counterparty credit risk and the use of trading and clearing mechanisms.

Large private fund advisers must provide more detailed information than smaller advisers.  The focus and frequency of the reporting depends on the type of private fund the adviser manages.

  • Large advisers to hedge funds must report on Form PF within 60 days of the end of each fiscal quarter, on an aggregated basis, information regarding exposures by asset class, geographical concentration and turnover.  If a hedge fund has a net asset value of at least $500 million, the adviser must report information regarding the fund’s exposures, leverage, risk profile, and liquidity.
  • Large advisers to liquidity funds must report on Form PF within 15 days of the end of each fiscal quarter, the types of assets in their liquidity funds, information relevant to the risks of the funds, and the extent to which the liquidity funds comply with Rule 2a-7 of the Investment Company Act of 1940, as amended.
  • Large advisers to private equity funds must file Form PF annually within 120 days of the end of the fiscal year and respond to questions regarding the extent of leverage incurred by their funds’ portfolio companies, the use of bridge financing and their funds’ investments in financial institutions.

Two-stage phase-in compliance with Form PF filing requirements:

  1. Advisers with at least $5 billion in hedge fund, liquidity fund, and private equity fund assets under management must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after June 15, 2012.
  2. Other private fund advisers must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after December 15, 2012.

Form PF Filing Fees:  $150 for initial, quarter or annual filing.

A full text of the SEC release is available here. 

Published on:

By

Pillsbury named “best” law firm at HFM Week’s U.S. Hedge Fund Services Awards

New York—Premier hedge fund publication HFM Week honored Pillsbury with its “Best Onshore Law Firm – Client Service” award, at the magazine’s annual U.S. Hedge Fund Services Awards ceremony in New York. This marks the third consecutive year Pillsbury has both received the HFM Week client service recognition and been a “shortlist” finalist in multiple award categories. Established to recognize impressive revenue growth, innovation and customer satisfaction among funds and service professionals, the awards are determined by a panel of independent judges, comprised of industry experts. Jay B. Gould, leader of Pillsbury’s Investment Funds & Investment Management practice team, accepted the award on behalf of Pillsbury.

Pillsbury’s press release is available here.

Published on:

By

Written by Bruce Frumerman, guest contributor

Bruce Frumerman is the CEO of Frumerman & Nemeth Inc., a communications and sales marketing consultancy that assists financial services firms create brand identities for their organizations and develop and implement effective new marketing strategies and programs.

In the article below, Mr. Frumerman offers effective marketing strategies for hedge fund managers to stay competitive and successful in the business.  This article first appeared in Reuters HedgeWorld on July 18 and is re-printed with permission below.

Rising competition among money managers is one of the key topics covered in Boston Consulting Group’s recently released ninth annual study of the worldwide asset management industry, Building on Success: Global Asset Management 2011…

A full text of the article is available here.

Published on:

By

Written by Jay Gould, Ildiko Duckor and Michael Wu

Effective on September 19, 2011, investors that pay performance fees to an adviser must either have at least $1 million managed by the adviser or a net worth of at least $2 million.

As mandated by the Dodd-Frank Act, the SEC today issued an order that raises two of the thresholds that determine whether an investment adviser can charge its clients performance fees.  As discussed in the article we posted here on May 11, under the current Rule 205-3 of the Investment Advisers Act of 1940, an investment adviser may charge its investors a performance fee if (i) the investor has at least $750,000 under management with the investment adviser (“asset-under-management test”), or (ii) the investment adviser reasonably believes that the investor has a net worth of more than $1.5 million (“net worth test”).  Today’s SEC order adjusted the amounts for the asset-under-management test to $1 million and the net worth test to $2 million.  The SEC order is effective on September 19, 2011.

Accordingly, it is important for investment fund managers to amend their offering materials to comply with the new requirements of Rule 205-3 under the Advisers Act.

Published on:

By

Written by Jay Gould and Michael Wu

On March 2, 2011, Pillsbury’s Investment Fund and Investment Management group (“Pillsbury IFIM Group”) submitted a comment letter to the North American Securities Administrator’s Association (the “NASAA”) on behalf of the California Hedge Fund Association and the Florida Alternative Investment Association.  The letter to the NASAA was intended to provide comments regarding the proposed model custody rule of the NASAA that was released on February 17, 2011.  A copy of the March 2, 2011 comment letter was posted here on March 8, 2011.

On May 23, 2011, Pillsbury IFIM Group submitted a second comment letter on behalf of the California and Florida fund groups to the NASAA commenting on the re-proposal of the model custody rule on April 18, 2011 (the “Re-Proposed Rule”).  The Re-Proposed Rule reflected certain suggestions made in the first letter to the NASAA, but would require that all portfolio positions be provided to all fund investors at the end of each quarter.  The letter requested that the NASAA limit quarter end disclosure to positions that comprise 5% or more of a fund’s portfolio and exclude all disclosure with respect to short positions.  Pillsbury believes that it is critical for fund managers and hedge fund industry groups to comment on the NASAA rule proposals, as it is likely that many states will simply adopt the NASAA rules without providing a robust public comment process as a result of the many new registrants for which the states will be responsible when the investment adviser registration provisions of Dodd Frank Act are fully implemented.

A full text of the second letter can be found here.