In This Issue:

• Back-Office Marketing Support: A Case Study - Dennis Ford
• ABL Interest Rising among Long-Term Investors - Michael Calore
• Thawing Markets - CT McLean
• Small-Market Buyout Funds on Investors Radars - Theo Bakolas
• Hot New Fund Mandates

Garnering investment dollars requires successfully managing a marketing campaign. In the alternative investment industry, such campaigns include everything from maintaining an updated investor database to planning road shows and generating e-mails announcing news events. For many firms, these are time consuming and laborious tasks that sap the resources of an already under resourced investor relations  department.

Since our launch more than two years ago, Brighton House Associates has come to act as clients’ sales and marketing back office. Through its suite of services, BHA helps clients target and execute marketing campaigns more efficiently than if they were tasked with the job alone. A perfect example of this is the experience of a current BHA client, a $90 million hedge fund based in London.

The client was planning a marketing trip to New York City. It knew the greater New York City area had an extensive network of investors, but it didn’t have months for its investor relations executive to cold call and find ones that currently had an interest in the firm’s specific strategy: global macro hedge funds. In fact, it had only three weeks. The client decided to call its analyst at BHA. 

BHA’s research analysts continually interview investors and update their profiles in the mandate database. As a result, the analyst was able to provide the client with two lists. The first contained investors in the New York City area specifically interested in global macro hedge funds. The second list itemized New York City area investors with a general interest in hedge funds. The client now had a highly targeted list of investors to call as well as a secondary contact list. Additionally, during the course of the three weeks, the analyst further identified 10 New York City investors whose profiles had just been added to BHA’s database and that had a specific interest in this firm’s strategy. 

In a week, the client set up 20 “introductory” meetings. What would have previously taken months in terms of calling and screening investors, now took five days because the client worked from a list of highly qualified prospects. In addition, the meetings were productive—no mercy meetings. The client met with prospective investors that had money to allocate and an interest in the client’s strategy. In fact, the client reports that it hopes to be shortlisted by several investors as the dialogue continues and the relationship develops, one of which is expecting to bring in a selected group of managers for more discussions before the end of the month.

The client used BHA as a sales and marketing back office, and was more productive and efficient. BHA helped the firm identify its real target universe out of thousands of investors, and it was able to find more investor prospects more quickly than if it had tried to source investors on its own. 

Compared with the first quarter, investor interest in asset backed lending (ABL) funds generally cooled during the second quarter—except during the past few weeks. Investor inquiries have been steadily increasing, specifically from investors with traditionally long-term investment horizons such as pension plans and private family offices.

Many investors have expressed concern about the stability of the equity markets, and think a significant drop is more than likely. Therefore, they want to be sure that they are invested with funds that are uncorrelated to broader equity markets and that offer them the consistent and long-term returns they have traditionally relied upon.

A multi-family office based in London is currently evaluating ABL managers for its upcoming allocations. The firm is looking to hedge against the underlying risk of its alternative portfolio by including more stable and consistent strategies; ABL funds are of particular interest.

A large fund of funds based in Connecticut expressed interest in evaluating ABL funds that have a link to distressed debt opportunities. The firm thinks that ABL funds, with their stable structure, can help it take advantage of opportunities in the distressed space while mitigating risk.

Though generally less liquid, ABL funds provide a consistent and reliable return stream while offering uncorrelated exposure. This is just what investors are looking for during these uncertain times. With the increasing unpredictability of the equity markets, ABL funds are poised to attract a growing number of investors throughout the remainder of 2009.

Hedge funds have been on the receiving end of a resurgent equity market, and an array of investors are taking note. The HFRI Fund Weighted Composite Index posted gains of 5.21 percent in May, bringing the year-to-date figure to 9.36 percent; easily the best start to a year since 1999. As the numbers indicate, there has been an overall thaw investors report a greater interest in researching funds and allocating capital, while fund managers report an increase in serious research and due diligence from investors across the globe.

Investors across all categories continue to focus the bulk of their research on evaluating liquid, transparent fund managers and strategies, which they believe will add value to their portfolios. Short-term trading strategies, including volatility arbitrage, global macro, and long/short equity are the primary focus, while CTA/managed futures continue to be in many investors’ crosshairs. Investors have expressed confidence in these types of funds, especially those that are nimble enough to make major portfolio shifts as markets continuously correct themselves. A portfolio manager at a European fund of hedge funds expressed that his firm has strategically allocated to multiple managers in these areas during the past month; however, all have been on its radar screen since the last quarter of 2008.

On the fund manager side of the equation, activity has recently picked up. Outflows have slowed considerably when compared with redemption levels of the previous two quarters, and marketing trips that were cancelled during the last half of 2008 and the beginning of 2009 have reemerged on funds’ calendars. Providing marketing and travel support is an integral feature of BHA’s service, and a recent flurry of activity highlight funds’ responses to the increase in investor confidence. Recently, a fund of hedge fund’s manager reported a noticeable uptick in serious investor interest in his own fund. While investors appeared to be luke warm towards fund of funds throughout the first quarter, he felt as though the tide was beginning to shift in this regard.

Although the industry is considerably smaller this year compared with years prior, the competition is no worse for the weary. Forging new relationships, getting in front of investors, and ardently presenting ones fund is essential to successfully raise money in this environment despite the promise of a turnaround. Marketing—even during the summer— will be key in forming new connections as the competition for the ever-valuable investor dollar heats up.

During the past few weeks, BHA analysts have noticed a slight increase in private equity investor interest in small-market buyout funds. Two weeks ago, 31 percent of investors had an interest in small-market buyout funds; last week that number rose to 34 percent.

One reason for this trend is that small-market buyout funds are focusing on deals that are less than $500 million, which is attractive to investors easing back into the market. Another reason is that small firms tend to rebound quickly. Small firms are usually hit hard by economic downturns because they do not have the resources to carry them through. Once the economy has turned around, however, their nimbleness helps them rebound much more quickly than their large counterparts. Considering the current economic landscape, this is making small-market buyout funds appealing to investors.

An example of such an investor is a tax-exempt institution based in the U.K. The institution is targeting both European and U.S. small-market buyout funds, concentrating on management teams aiming for capital commitments of $100 million to $500 million. Another example is a corporate pension fund based in the U.S. It is looking to invest in small- and mid-market buyout funds that have exposure to micro- and small-cap companies with $100 million to $700 million in assets. This firm invests in funds focused on healthcare, energy, financial, technology, and consumer goods, and recently began researching media and communications funds.

Mid-market funds continue to be the main interest of institutional investors; however, BHA analysts see small-market buyout funds increasing in popularity among active private equity investors.

© 2009 Brighton House Associates, LLC. 4 Mount Royal Ave., Suite 140, Marlboro, MA 01752

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