The Lake Wobegon Effect-where, according to its creator, Garrison Keillor, 'all the women are strong, all the men are good looking, and all the children are above average'-relates to the tendency to overestimate one's achievements and capabilities in relation to others. Lake Wobegon seems to be alive and well in the hedge fund industry, where every manager thinks they are above average, despite a wide range of evidence to the contrary.

Yet, some managers truly are better, and investors are keen to allocate to these rare commodities in the alternatives world. Getting fund managers to see themselves clearly and to formulate a strategy encompassing both business plans and growth of assetsobjectives to maximize their potential value requires skills beyond investment efforts. This goal requires a forward-thinking approach to fund management.

Look to where you want to be and not to where you used to be

Formulating a true business strategy before launching a fund can provide managers with an action plan for growth and sustainability that exists outside the performance factor which tends to dominate the energy and attention of most new managers. Some key questions every new manager should address internally before being asked by an investor might include:

What talent resources-investment and otherwise-do you have in place now and for scaling?

What space planning and operations have you secured for the business itself?

What assessment have you done regarding information gaps and solutions-in other words, what do you know you don't know?

Have you articulated growth targets and how will you measure when/if you hit them?

How will you adjust on the fly? Do you have several scenarios outlined for action steps to take based on fast growth/medium growth/slow growth?

When or will you consider taking on an equity partner? If when, how will you find pr......................

To view our full article please login

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