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New Managers September 2017

MARKETING CHALLENGE: Diane Harrison: A Practicum for AUM, Michael H. Greenstein: Your story is the key


There's no denying that one of the biggest challenges small managers face is raising capital. To become large enough to turn a profit and expand is a common migraine that keeps emerging managers up at night. Forget fretting over last quarter's performance: most of these managers obsess over not being able to add enough LPs to their fund before they run out of cash.

A July article on the CAIA website AllAboutAlpha, Hedge Fund Gigantism is Not Necessary, offers solace for these smaller fund managers, loosely defined as those at or under $500m. A joint survey by the Alternative Investment Management Association and GPP, the financial services firm formerly known as Global Prime Partners,states that this segment of the industrynumbers 2,052 participants,accounting for 6% of the total industry AUM. A notable glimmer of hope from this study for these smaller players was the fact that the average break-even point for small funds is achievable for many, at around $86m. And for some, with certain strategies such as a quantitative focus, that figure can drop under $50m.

Where will the cash come from?

So the good news is small managers need less to make it. But they still need to secure enough funding north of $50M to consider their business viable for the long term. Beyond the obvious?putting in their own money, garnering as much as possible from family and close friends with belief in the process?where is the rest going to come from?

Not to sound overly pessimistic, but perhaps beginning with where not to look for money is a good starting point. Small managers cannot plan to rely on institutional investors falling in love with their strategy and jumping on board, even if they have prior experience as a portfolio manager managing hundreds of millions of their dollars.

Also, these managers shouldn't waste time talking with third-party marketers, who gush over the smart approach and claim they can raise that initial $100mlic......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
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