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Hedge fund branding drives asset flows

Since the market correction of 2008, a vast majority of hedge fund net asset flows have gone to a small minority of hedge funds with the strongest brands.

A recent report from Hedge Fund Research shows that approximately 69 per cent of hedge fund assets are controlled by firms with over USD5 billion in assets under management and 91 per cent are controlled by firms with over USD1 billion in assets.

This is a significant increase from the 2009 percentages of 61 per cent and 86 per cent respectively.

Don Steinbrugge (pictured) of Agecroft Partners writes that each year many hedge fund investors are inundated with thousands of emails and phone calls from managers requesting a meeting. To filter through the overload of information, investors are turning more and more to a firm’s brand when choosing which funds to meet and ultimately invest with.

However, having a strong brand is not limited to just the largest managers. For example, many investors will allocate to start-up firms that spun-out of other high profile organisations, despite the fact they have no audited track record. In reality, a strong brand is even more important for hedge funds with less than USD250 million in AUM. Despite the fact that these managers represent a vast majority of the approximately 15,000 hedge funds, they only represent 2.94 per cent of assets.

A brand is an investor’s perception of the overall quality of a hedge fund based on multiple evaluation factors that evolve over time. A high-quality brand takes a long time to develop, but once achieved, it significantly enhances a firm’s ability to raise capital and retain assets during a drawdown in performance.

Over time, Steinbrugge believes the trend concentrating a higher percentage of assets in the largest managers will reverse. He expects this to happen due to increased sophistication of institutional investors, poor recent performance of many of the largest, well known hedge funds, the pressure institutional investors are receiving to enhance returns, and the belief that smaller, more nimble managers have an advantage in a performance environment increasingly dependent on security selection. This is especially true for small managers operating in less efficient markets or capacity constrained strategies.

For the small number of new hedge fund launches that are successful each year, their high-quality brand was typically created at their previous firm. This may include having held a senior position at another top-quality brand hedge fund, having spun out of a top investment bank proprietary trading desk, or having been seeded by a well-known investor.

For the hedge funds not fortunate enough to launch with such fanfare, the key question is, what are the firms that have developed the strongest brands doing differently?

There are three critical issues to consider in creating a strong brand and raising assets in today’s competitive environment: the quality of the fund offering, the investor’s perception of the quality of the fund offering, and the marketing and sales strategy.

The first step in the process is having a high quality product offering. Based on Agecroft Partners’ hedge fund research process which considers thousands of hedge funds each year based on multiple evaluation criteria, 85 per cent to 90 per cent of hedge funds are not very good. With over 15,000 hedge funds to choose from, it is almost impossible for these sub-par managers to raise assets from investors outside of friends and family.

The biggest mistake most of these lower-quality hedge funds make is not understanding the evaluation factors investors utilise to select hedge funds and therefore not creating a top-quality offering. These typically include an evaluation of a firm’s operational infrastructure, investment team and their pedigree, investment process focused on an inefficiency in the capital markets and their differential advantages to capture this inefficiency, risk controls, performance, service providers and fund terms. A weakness in any of these factors can eliminate a firm from consideration. The marketplace is highly competitive and hedge fund investors use a process of elimination in selecting hedge funds. This typically begins by screening the thousands of hedge funds in the market place, meeting with a couple hundred and hiring a select few each year. In some cases a minor adjustment can significantly improve the marketability of the fund. Hedge fund performance tends to be the initial screen which eliminates a majority of managers, but once performance has reached a certain hurdle its weighting in the evaluation process is less important than most managers realise.

The second step in the process of building a strong brand is making sure the market’s perception of the firm is equal to reality. This requires a consistently delivered, concise and linear marketing message that identifies the differential advantages across each of the evaluation factors investors use to select hedge funds. Many high quality hedge funds have difficulty raising assets because they do a poor job of articulating their message to the marketplace and their strengths are under-appreciated or unnoticed. Unfortunately, it often takes only one poorly worded answer to get a firm eliminated from consideration.

It is important that the marketing message is clearly understood and articulated by all employees of the hedge fund. The message should be consistently integrated throughout all the firm’s communications including the website, oral presentations, written materials, due diligence questionnaires and quarterly letters. A well-prepared and accurate marketing presentation creates a consistency that builds confidence in potential investors.

The final step in building a strong brand is implementing a highly-focused marketing and sales strategy that broadly penetrates the marketplace while being compliant with regulatory guidelines. The hedge fund investor marketplace is highly inter-connected. Many investors exchange ideas on managers through both formal and, most often, informal channels. The hedge fund investor marketplace is highly inter-connected investors exchange ideas on managers through both formal and, most often, informal channels. As a result, the more deeply a manager penetrates the marketplace the stronger their brand will become. Building a strong brand and raising assets takes time and cannot be rushed. The hedge fund industry is not transaction oriented. In many instances, being too aggressive will eliminate a firm from the selection process. A majority investors require a minimum of three or four meetings with a fund before they will invest.

One way to accelerate the process is to utilise a well-seasoned, highly respected internal sales team, top-tier third party marketing firm or a combination of both. Experienced and well-thought of salespeople often have a reputation or brand in the marketplace themselves and can have a large impact on a hedge fund’s success in growing their asset base. If their brand is strong, it can add credibility and significantly increase the likelihood of meeting with an investor. Prime broker capital introduction teams can also be a valuable resource to introduce a firm to investors through their conferences or other activities. However, their activity is limited by regulation and should not be relied upon solely. As mentioned before, it usually takes multiple meetings for an investor to conclude their assessment and it is very important to have multiple people maintain a consistent focus on the sales process.

It is well known that strong performance alone will not attract assets. The firms that will be successful in growing their business are ones that stay highly focused on providing a top-quality offering, clearly articulate their firm’s differential advantages and have a highly professional sales and marketing strategy that deeply penetrates the market place.


To contact the author, Don Steinbrugge – please visit his page on LinkedIn or visit his company’s website.

Principles by Ray Dalio

Principles by Ray Dalio

The following is an excerpt from Ray Dalio’s Principles, first shared in 2011. A revised, updated version will be published by Simon & Schuster in September 2017. For more information, please visit principles.com.

Summary and Table of Principles

To Get the Culture Right…

1) Trust in Truth …

2) Realize that you have nothing to fear from truth. …

3) Create an environment in which everyone has the right to understand what makes sense and no one has the right to hold a critical opinion without speaking up about it. …

4) Be extremely open. …

5) Have integrity and demand it from others. a) Never say anything about a person you wouldn’t say to them directly, and don’t try people without accusing them to their face. b) Don’t let “loyalty” stand in the way of truth and openness. …

6) Be radically transparent. a) Record almost all meetings and share them with all relevant people. …

7) Don’t tolerate dishonesty. a) Don’t believe it when someone caught being dishonest says they have seen the light and will never do that sort of thing again.

8) Create a Culture in Which It Is OK to Make Mistakes but Unacceptable Not to Identify, Analyze, and Learn From Them …

9) Recognize that effective, innovative thinkers are going to make mistakes. …

10) Do not feel bad about your mistakes or those of others. Love them! …

11) Observe the patterns of mistakes to see if they are a product of weaknesses. …

12) Do not feel bad about your weaknesses or those of others. …

13) Don’t worry about looking good—worry about achieving your goals. …

14) Get over “blame” and “credit” and get on with “accurate” and “inaccurate.” …

15) Don’t depersonalize mistakes. …

16) Write down your weaknesses and the weaknesses of others to help remember and acknowledge them. …

17) When you experience pain, remember to reflect. …

18) Be self-reflective and make sure your people are self-reflective. …

19) Teach and reinforce the merits of mistake-based learning. a) The most valuable tool we have for this is the issues log (explained fully later), which is aimed at identifying and learning from mistakes.

20) Constantly Get in Synch …

21) Constantly get in synch about what is true and what to do about it. …

22) Talk about “Is it true?” and “Does it make sense?” …

23) Fight for right. …

24) Be assertive and open-minded at the same time.

a) Ask yourself whether you have earned the right to have an opinion.

b) Recognize that you always have the right to have and ask questions.

c) Distinguish open-minded people from closed-minded people.

d) Don’t have anything to do with closed-minded, inexperienced people.

e) Be wary of the arrogant intellectual who comments from the stands without having played on the field.

f) Watch out for people who think it’s embarrassing not to know. …

25) Make sure responsible parties are open-minded about the questions and comments of others. …

26) Recognize that conflicts are essential for great relationships because they are the means by which people determine whether their principles are aligned and resolve their differences.

a) Expect more open-minded disagreements at Bridgewater than at most other firms.

b) There is giant untapped potential in disagreement, especially if the disagreement is between two or more thoughtful people.

Continue reading by visiting Ray Dalio’s site or download the complete PDF by clicking here

The Ultimate Cheat Sheet For Reinventing Yourself by James Altucher

The Ultimate Cheat Sheet For Reinventing Yourself by James Altucher

I am a huge fan of James Altucher – he describes himself “I’m an entrepreneur and angel investor. I’ve achieved the rank of chess master. And I’m the author of the Wall Street Journal bestselling book “Choose Yourself.I’ve started 20 companies, 17 of which have failed. But I’ve learned a lot along the way.” he just wrote a fantastic book called “Reinvent Yourself” – i loved it – here’s a great cheat sheet


Here are the rules: I’ve been at zero a few times, come back a few times, and done it over and over. I’ve started entire new careers. People who knew me then, don’t me now. And so on.

I’ve had to change careers several times. Sometimes because my interests changed. Sometimes because all bridges have been burned beyond recognition, sometimes because I desperately needed money. And sometimes just because I hated everyone in my old career or they hated me.

There are other ways to reinvent yourself, so take what I say with a grain of salt. This is what worked for me.

I’ve seen it work for maybe a few hundred other people. Through interviews, through people writing me letters, through the course of the past 20 years. You can try it or not.

A) Reinvention never stops.

Every day you reinvent yourself. You’re always in motion. But you decide every day: forward or backward.

B) You start from scratch.

Every label you claim you have from before is just vanity. You were a doctor? You were Ivy League? You had millions? You had a family? Nobody cares. You lost everything. You’re a zero. Don’t try to say you’re anything else.

C) You need a mentor.

Else, you’ll sink to the bottom. Someone has to show you how to move and breathe. But don’t worry about finding a mentor (see below).

D) Three types of mentors

Direct. Someone who is in front of you who will show you how they did it. What is “it”? Wait. By the way, mentors aren’t like that old Japanese guy in “The Karate Kid.” Ultimately most mentors will hate you.
Indirect. Books. {See More On How Books Can Be Better Mentors Than People… And My New Solution To Help You Find Your Mentor – Click Here}. You can outsource 90 percent of mentorship to books and other materials. 200-500 books equals one good mentor. People ask me, “What is a good book to read?” I never know the answer. There are 200-500 good books to read. I would throw in inspirational books. Whatever are your beliefs, underline them through reading every day.
Everything is a mentor. If you are a zero, and have passion for reinvention, then everything you look at will be a metaphor for what you want to do. The tree you see, with roots you don’t, with underground water that feeds it, is a metaphor for computer programming if you connect the dots. And everything you look at, you will connect the dots.
mentor

E) Don’t worry if you don’t have passion for anything.

You have passion for your health. Start there. Take baby steps. You don’t need a passion to succeed. Do what you do with love and success is a natural symptom.

F) Time it takes to reinvent yourself: five years.

Here’s a description of the five years:

Year One: you’re flailing and reading everything and just starting to DO.
Year Two: you know who you need to talk to and network with. You’re Doing every day. You finally know what the monopoly board looks like in your new endeavors.
Year Three: you’re good enough to start making money. It might not be a living yet.
Year Four: you’re making a good living
Year Five: you’re making wealth
Sometimes I get frustrated in years 1-4. I say, “why isn’t it happening yet?” and I punch the floor and hurt my hand and throw a coconut on the floor in a weird ritual. That’s okay. Just keep going. Or stop and pick a new field. It doesn’t matter. Eventually you’re dead and then it’s hard to reinvent yourself.

G) If you do this faster or slower then you are doing something wrong.

Google is a good example.

H) It’s not about the money. But money is a decent measuring stick.

When people say “it’s not about the money” they should make sure they have a different measuring stick.

“What about just doing what you love?” There will be many days when you don’t love what you are doing. If you are doing it just for love then it will take much much longer than five years.

Happiness is just a positive perception from our brain. Some days you will be unhappy. Our brain is a tool we use. It’s not who we are.

I) When can you say, “I do X!” where X is your new career?

Today.

J) When can I start doing X?

Today. If you want to paint, then buy a canvas and paints today, start buying 500 books one at a time, and start painting. If you want to write do these three things:

Read
Write
Take your favorite author and type your favorite story of his word for word. Wonder to yourself why he wrote each word. He’s your mentor today.
If you want to start a business, start spec-ing out the idea for your business. Reinvention starts today. Every day.

K) How do I make money?

By year three you’ve put in 5,000-7,000 hours. That’s good enough to be in the top 200-300 in the world in anything. The top 200 in almost any field makes a living.

By year three you will know how to make money. By year four you will scale that up and make a living. Some people stop at year four.

L) By year five you’re in the top 30-50 so you can make wealth.

M) What is “it”? How do I know what I should do?

Whatever area you feel like reading 500 books about. Go to the bookstore and find it. If you get bored three months later go back to the bookstore.

It’s okay to get disillusioned. That’s what failure is about. Success is better than failure but the biggest lessons are found in failure.

Very important: There’s no rush. You will reinvent yourself many times in an interesting life. You will fail to reinvent many times. That’s fun also.

Many reinventions make your life a book of stories instead of a textbook.

Some people want the story of their life to be a textbook. For better or worse, mine is a book of stories.

That’s why reinvention happens every day.

N) The choices you make today will be in your biography tomorrow.

Make interesting choices and you will have an interesting biography.

N1) The choices you make today will be in your biography tomorrow.

O) What if I like something obscure? Like biblical archaeology or 11th-century warfare?

Repeat all of the steps above, and then in year five you will make wealth. We have no idea how. Don’t look to find the end of the road when you are still at the very first step.

P) What if my family wants me to be an accountant?

How many years of your life did you promise your family? Ten years? Your whole life? Then wait until the next life. The good thing is: you get to choose.

Choose freedom over family. Freedom over preconceptions. Freedom over government. Freedom over people-pleasing. Then you will be pleased.

Q) My mentor wants me to do it HIS way.

That’s fine. Learn HIS way. Then do it YOUR way. With respect.

Hopefully nobody has a gun to your head. Then you have to do it their way until the gun is put down.

R) My spouse is worried about who will support/take care of kids?

Then after you work 16 hours a day, seven days a week being a janitor, use your spare time to reinvent.

Someone who is reinventing ALWAYS has spare time. Part of reinvention is collecting little bits and pieces of time and re-carving them the way you want them to be.

S) What if my friends think I’m crazy?

What friends?

T) What if I want to be an astronaut?

That’s not a reinvention. That’s a specific job. If you like “outer space” there are many careers. Richard Branson wanted to be an astronaut and started Virgin Galactic.

U) What if I like to go out drinking and partying?

Read this post again in a year.

V) What if I’m busy cheating on my husband or wife or betraying a partner?

Read this post again in two or three years when you are broke and jobless and nobody likes you.

W) What if I have no skills at all?

Read “B” again.

X) What if I have no degree or I have a useless degree?

Read “B” again.

Y) What if I have to focus on paying down my debt and mortgage?

Read “R” again.

Z) How come I always feel like I’m on the outside looking in?

Albert Einstein was on the outside looking in. Nobody in the establishment would even hire him.

Everyone feels like a fraud at some point. The highest form of creativity is born out of skepticism.

AA) I can’t read 500 books. What one book should I read for inspiration?

Give up.

BB) What if I’m too sick to reinvent?

Reinvention will boost every healthy chemical in your body: serotonin, dopamine, oxytocin. Keep moving forward and you might not get healthy but you will get healthier. Don’t use health as an excuse.

Finally, reinvent your health first. Sleep more hours. Eat better. Exercise. These are key steps to reinvention.

CC) What if my last partner screwed me and I’m still suing him?

Stop litigating and never think about him again. Half the problem was you, not him.

DD) What if I’m going to jail?

Perfect. Reread “B.” Read a lot of books in jail.

EE) What if I’m shy?

Make your weaknesses your strengths. Introverts listen better, focus better, and have ways of being more endearing.

FF) What if I can’t wait five years?

If you plan on being alive in five years then you might as well start today.

GG) How should I network?

Make concentric circles. You’re at the middle.

The next circle is friends and family.

The next circle is online communities.

The circle after that is meetups and coffees.

The circle after that is conferences and thought leaders.

The circle after that is mentors.

The circle after that is customers and wealth-creators.

Start making your way through the circles.

HH) What happens when I have ego about what I do?

In 6-12 months you’ll be back at “B.”

II) What if I’m passionate about two things? What if I can’t decide?

Combine them and you’ll be the best in the world at the combination.

JJ) What if I’m so excited I want to teach what I’m learning?

Start teaching on YouTube. Start with an audience of one and see if it builds up.

KK) What if I want to make money while I sleep?

In year four, start outsourcing what you do.

LL) How do I meet mentors and thought leaders?

Once you have enough knowledge (after 100-200 books), write down 10 ideas for 20 different potential mentors.

None of them will respond. Write down 10 more ideas for 20 new mentors. Repeat every week.

Put together a newsletter for everyone who doesn’t respond. Keep repeating until someone responds. Blog about your learning efforts. Build community around you being an expert.

MM) What if I can’t come up with ideas?

Then keep practicing coming up with ideas. The idea muscle atrophies. You have to build it up.

It’s hard for me to touch my toes if I haven’t been doing it every day. I have to do it every day for a while before I can easily touch my toes. Don’t expect to come up with good ideas on day one.

NN) What else should I read?

AFTER books, read websites, forums, magazines. But most of that is garbage.

OO) What if I do everything you say but it still doesn’t seem like it’s working?

It will work. Just wait. Keep reinventing every day.

Don’t try and find the end of the road. You can’t see it in the fog. But you can see the next step and you do know that if you take that next step eventually you get to the end of the road.

PP) What if I get depressed?

Sit in silence for one hour a day. You need to get back to your core.

If you think this sounds stupid then don’t do it. Stay depressed.

QQ) What if I don’t have time to sit in silence?

Then sit in silence for two hours a day. This is not meditation. This is just sitting.

RR) What if I get scared?

Sleep 8-9 hours a day and never gossip. Sleep is the No. 1 key to successful health. It’s not the only key. It’s just No. 1. Some people write to me and say, “I only need four hours of sleep” or “in my country sleeping means laziness.” Well, those people will fail and die young.

What about gossip? The brain biologically wants to have 150 friends. Then when you are with one of your friends you can gossip about any of the other 150. If you don’t have 150 friends then the brain wants to read gossip magazines until it thinks it has 150 friends.

Don’t be as stupid as your brain.

SS) What if I keep feeling like nothing ever works out for me?

Spend 10 minutes a day practicing gratitude. Don’t suppress the fear. Notice the anger.

But also allow yourself to be grateful for the things you do have. Anger is never inspirational but gratitude is. Gratitude is the bridge between your world and the parallel universe where all creative ideas live.

TT) What if I have to deal with personal bullshit all the time?

Find new people to be around.

Someone who is reinventing herself will constantly find people to try and bring her down. The brain is scared of reinvention because it might not be safe.

Biologically, the brain wants you to be safe and reinvention is a risk. So it will throw people in your path who will try to stop you.

Learn how to say “no.”

UU) What if I’m happy at my cubicle job?

Good luck.

VV) Why should I trust you – you’ve failed so many times?

Don’t trust me.

WW) Will you be my mentor?

You’ve just read this post.