The Importance of Relationship Building
As the second quarter comes to an end, more and more investors have been emphasizing the importance of relationship building. As many anticipate making allocations during the first half of 2010, investors are eager to begin meeting and developing a rapport with alternative fund managers.
Typically it takes investors six to twelve months to meet a new manager, conduct due diligence, and make an allocation. Given such a lengthy process, fund managers need to recognize the importance of building relationships now, so that when investors are prepared to make allocation decisions in the future, the fund is on the short list to receive a potential allocation.
A portfolio manager at a large European bank explained that the bank is exclusively focused on meeting with qualified managers that have a proven track record. The bank doesn’t anticipate allocating capital to funds until late in 2009 at the earliest; however, it is researching managers now to stay on top of funds in the market and prepare itself for the end of the year when it will be ready to commit capital.
This sentiment was echoed by a small family office in the U.S. The office expects to make investments early next year as capital becomes available. The firm wants to have a strong portfolio of managers that it is comfortable with and confident in by that time. The office emphasized that its due diligence process had become longer and more involved after a difficult 2008. Going forward, increased transparency, improved communication, and a strong relationship with its managers will be of utmost importance.
It is in the interest of managers to begin building relationships with investors. Investors are understandably cautious following 2008. The managers that meet with them and develop a rapport today will not only receive allocations when money becomes available, but will also benefit from consistent, long-lasting relationships.