The following is an excerpt from a recently written White Paper on the basics of fund marketing.

The primary marketing challenge for the alternative investments industry is finding the sales and marketing expertise required to realize capital inflows. Compounding this issue is the SEC and FINRA regulatory landscape: it is morphing at a time when institutional alternative investors are re-evaluating investment strategies and reshuffling portfolios. These dynamics require fund managers to review and recalibrate their sales and marketing strategies and tactics.

The three main questions on fund managers’ minds are:

• What is the current fundraising environment?

• How are firms raising capital and rebuilding their investor base?

• What must firms do to prepare and execute successful fundraising campaigns?

Fundraising is not a one-time event. In fact, it must be an integral and ongoing part of every firm’s business strategy to validate a fund’s model, and to ensure profitability and growth. Practically speaking, fundraising ebbs and flows at most firms, but it should never be far from your firm’s collective conscience.

Thousands of hedge fund managers are currently seeking allocations; yet, many do not know what it takes to execute a sales and marketing campaign. The quest for raising capital from alternative investors comes under the umbrella of sales and marketing, and like it or not, sales and marketing are professional jobs that take years to learn and perfect.

The Fundraising Environment

Back in the days of yore, a high-flying manager could be discovered by investors. And if the manager had the right performance numbers and a compelling story, investors would make an allocation. The whole due diligence process was often completed in a relatively small amount of time, typically three to six months. This was passive fundraising. The investor relations staff had only to answer the phone to raise capital.

Active fundraising didn’t require much more effort. Times were good. When managers wanted to raise capital, they could call upon their stable of investors and ask them to increase their commitments.

Those days are long gone. The paradigm has shifted. No longer are investors coming in over the transom, and the financial crisis caused many stalwart, dependable investors to leave funds. Today, managers looking to raise capital must “go outbound” and find investors that are a good fit for their strategies.

To read the rest of Marketing Your Fund: A Primer, please click here.

Predictions from economists worldwide are no secret: developing economies will drive economic growth for the foreseeable future. In fact, earlier this year, the IMF raised its expectation for GDP growth in developing nations as a whole by nearly 1 percentage point, to 6 percent for 2010. Leading these predictions are the Pan-Asian nations of China and India. Both are expected to outpace the rest of the world with predicted GDP growth of 10 percent and 7.7 percent, respectively.1

Furthermore, the Eurekahedge Asian Hedge Fund Index was up 26.19 percent in 2009 and is continuing its positive trend in 2010, up 1.75 percent year to date. Comparatively, the EurekaHedge global hedge fund index returned 19.66 percent in 2009 and has a slight edge in 2010, up 2.17 percent year to date.2 Other developed market indices have had better returns than their Asian counterpart thus far in 2010, but many investors are staying faithful to investing in Asian funds. This is due largely to the prevailing sentiment that emerging markets are the vehicle driving economic growth, and Asia is the leading force.

Although many international investors devote capital to Asian opportunities to gain regional diversity, the question is: Why would an Asian firm, which is already inherently exposed to its local economies aside from its hedge fund investments, wish to keep its regional focus so narrow when developed markets have performed very well in the past 15 months (and better than Asian funds during the first quarter)?

One possible answer may stem from the idea that it is important to stay ahead of investment trends; leading is always better than following, or in simpler terms: buy low, sell high. As greater proportions of the world’s investors look to Asian markets, those who have led the investment charge will reap the greatest rewards. Thus, Asian investors, who are looking for the next big profit centers, are increasingly focused on hedge funds investing in Asia, which look to be poised for exceptional returns.

Another possible explanation may lie in historical GDP growth in Asia compared with the averages across the G7 nations and the world as a whole. According to the International Monetary Fund, Asia has been well above the worldwide average for annual GDP growth since the turn of the century, in some years more than doubling this average. (See Figure 1).3

BHA analysts have seen sustained demand among Asian investors for funds that are focused on Asia. More specifically, of the 115 active hedge fund investors in Asia, 47 are looking for funds focused exclusively on their home continent—whether they are investing in the region as a whole, or in country-specific funds focused on China, India, or Japan. Comparatively, of these 115 active hedge fund investors, only 21 are looking for U.S.- or European-focused funds.

A family office based in Hong Kong recently specified that it is focused exclusively on investments in Asia. The firm has a strong preference for equity-focused funds. It believes that the favorable outlook for local economies will bolster Asian stock markets and provide exceptional investment opportunities. Furthermore, the firm believes that as capital continues to flow into this segment of the world, productivity will increase and GDP predictions will be upheld.

1 Reuters, “The IMF sharply raises global economic growth forecast,” January 26,2010.

2 Eurekahedge, April 20, 2010.

3 International Monetary Fund, World Economic Outlook Database, October 2009.

Investment consultants have been a staple in assisting institutional clients with asset allocation and manager selection duties. The financial crisis of 2008, however, put the issue of control at the forefront of many institutional investors’ minds and healthcare endowments and pension plans in particular are seeking a higher level of oversight. Although final authorization typically rests with an investment board, the concern is that many board members simply follow the opinion of the consultant.

The past 12 months have seen healthcare endowment and pension funds move away from a consultant-driven approach and hire internal investment teams. A $1 billion, New York City-based medical center was the first to create an internal department in early 2009, hiring a former chief investment officer from a Texas university. More recently, a $700 million, Texas-based healthcare system plucked multiple investment staffers from a $500 million endowment to spearhead its portfolio. Finally, a Midwestern healthcare system with more than $15 billion has moved away from its consultant-led approach and hired three former chief investment officers from U.S. endowments to implement its new policies.

Investment professionals with significant experience in the endowment model of investing, pioneered by Yale and weighted significantly to alternative asset classes, appear to be the primary hires for these new positions. Each of the firms has plans to overhaul its entire portfolio—plans that include a significant focus on increasing uncorrelated investments to protect its assets in falling markets. One healthcare system expects to shift its absolute return exposure from the funds of funds suggested by its former consultant, to a more direct approach, reducing the amount it pays in management and performance fees. Additionally, it expects to make $5 million to $10 million commitments to private equity opportunities in 2010, either through multi-manager or single-manager vehicles.

Consultants are not anticipated to lose significant ground, but institutions with sizeable portfolios are not hesitating to incur the additional expense of constructing an internal investment team, and these changes present significant opportunities for alternative investment funds.

Brighton House Associates recently ventured down under to gain a better understanding of the Australian alternative marketplace—how fund managers raise capital and the areas of interest to investors. Being so far away from major financial hubs, Australia is rarely discussed in the alternatives industry.

Australia’s main investor in alternatives has been the Superannuation fund, which manages retirement and pension plans for public and private employees. In the past, these plans invested heavily in local funds. Presently, the Superannuation plans have begun to take a different approach and invest in global and offshore fund managers. This has not only tightened capital inflows for many midsized hedge funds but also made it difficult for emerging funds to source capital. Many managers are realizing that growing their funds will require them to market to offshore investors.

The obvious barrier to this effort is their location. The majority of alternative investors conduct on-site due diligence when researching new managers, and there are plenty of funds located in and around major financial hubs. There is little incentive for U.S., European, and Asian investors to spend time and money flying to Australia a few times a year when there are many managers in more convenient locations.

Another barrier is the time difference. Many managers want to proactively market their funds, however, they have only a small window of opportunity during the business day to make phone calls or hold conference calls with investors.

Australian investors expressed a similar frustration: they find it difficult to source managers because many funds do not travel to Australia to conduct business. In fact, one of the major factors that affect their investment decisions is if a manager is willing to come to Australia once or twice a year.

Overall, many fund managers are realizing that to grow their business, they need to dedicate more time to marketing offshore or open offices in strategic locations. In the next few years, BHA expects to see more Australian funds attempt to increase their global presence.

Managers that are actively marketing their funds must be willing and able to travel domestically and internationally to effectively canvass the global investor universe. Managers that are committed to meeting investors will have the most success raising capital because these managers are not limiting themselves to a small circle of friends and contacts.

The world is increasingly interconnected and the alternative investment industry is no exception. Investors of all types—pension plans, family offices, and corporations—and in all regions are looking to diversify their assets using alternative fund vehicles. The managers that are not only calling and e-mailing prospects but also traveling have the greatest chance of reaching potential investors and conducting meaningful business. In fact, investors often welcome the opportunity to meet with fund managers that travel with the express purpose of speaking to investors about the firm’s products.

Now is an excellent time for managers to be traveling and marketing their funds. The most recent BHA data show that the number of investor mandates is increasing dramatically. As shown in the figure, during the first half of 2009 BHA received 1,000 mandates from investors; in the second half of 2009, the number increased dramatically to 1,400. With so many investors looking to evaluate funds, there has never been a better time to launch a marketing campaign, identify potential investors, and set up meetings with as many investors as possible.

Private investors and family offices are among the most experienced investors in the alternative investments industry. For some managers, their exposure to this segment of the investor market is limited to investments from their personal connections: wealthy families, friends, and colleagues. In order for these managers to build new relationships with this elite clientele, it is important for them to understand that family offices operate in a manner that is unlike most other investors.

Family offices take a long-term view. They are investing for their families’ future generations and investment officers need to invest in a way that will ensure that the money will still be there years from today. For this reason, performance alone is not enough to catch the interest of these investors, and the due diligence process is often more lengthy than many managers expect.

When evaluating a fund, many family office investors are most concerned with the operations of the fund’s managing firm. Family offices want to see the risk management controls that the manager has in place. They want to see how the back-office operations are structured. They want to understand the investment process. Last week, a multifamily office based in Switzerland expressed that these criteria are much more meaningful to the firm and its clients than a stellar year of returns.

Family offices are also unique investors with regard to the way they source managers. Some family offices maintain complete privacy and ignore cold calls and e-mails from fund managers with whom they have no prior relationship. These investors may rely on referrals made by friends, family, and other personal connections. Other family offices find capital introduction groups to be the most helpful because over time these groups come to understand what they want and can call them with qualified opportunities.

BHA has been successful in speaking with many family offices whose challenge lies in finding the right manager at the right time, or in maintaining a good pipeline of qualified managers for potential allocations. Through its network of investors, the research team at BHA identifies these opportunities for its manager clients, which puts them in a great position to present their funds.

Every day, alternative investors share their current mandates with BHA research analysts. The reason? So BHA can help investors find managers that fit their requirements and help managers find investors that have mandates for their strategies. That is the essence of the BHA service: helping investors and managers find each other when there is a fit.

The alternative to BHA’s business model is the industry status quo: 20,000 managers buying investor contact lists and e-mailing everyone in the database without any knowledge of the prospects’ needs.

This is called spamming and investors hate it. On a slow week, the average institutional investor firm receives more than 100 unsolicited e-mails and phone calls about products that do not fit its current mandates.

This has some serious repercussions. It creates a lot of needless “noise” that prevents investors from finding managers they want to talk to and makes it hard for managers to reach investors they are a fit for. It forces investors to erect elaborate spam defenses. And it wastes everyone’s time and irritates and alienates investors.

Finally, and most important, it doesn’t work. Spamming is a cavalier marketing approach used by unprofessional and ignorant marketing and sales folks who don’t want to take the time or make the effort to learn how to market to their target audience.

Smart, professional marketers willingly do the necessary leg work. They research the types of investors that will invest in their products. They figure out ways to legitimately contact investors. And they protect their reputation and that of their firms by never doing anything that could be construed as spam. As a result, they have an inordinate amount of success.

It has been proven that to be successful in marketing and sales, the only thing that matters is “fit.” Does an investor have a mandate for your type of firm and strategy? If so, then there is a high probability of getting through to the investor. If there is no fit, there is virtually no chance. But should a marketer manage to get through, it will take a miracle to convince an investor to choose a long/short strategy when he or she is looking for an asset-backed lending fund.

Ask today’s gurus of sales and marketing the best way to approach prospects and they will say, first and foremost, it is all about fit. If you try and force a fit, the results will be disastrous. Second, spend time finding a fit by researching prospects and devising effective techniques that cut through the noise in the marketplace. Third, be in the game for the long haul. Earnestly build relationships based on mutual respect and mutual need.

The U.N. Climate Change Conference is wrapping up after two weeks of discussion, leaving many questions unanswered. However, the agenda of climate change mitigation has put the spotlight on some interesting opportunities for the enterprising investor. As countries craft policies to reduce their carbon emissions, entrepreneurs are developing businesses around green technologies. These same policies that will cut emissions will also spur economic growth. As guidelines change and carbon emission reduction gains more momentum, investors are poised to take advantage of this emerging sector.

Alternative energy and clean tech are two green technology sectors that are attracting strong interest among alternative investors. Groups investing in these sectors range from government pension plans to funds of funds. These investors are not only seeking private equity funds but also hedge funds that have green tech strategies, such as carbon trading and long/short equities that focus on the clean tech space. During the month of November, approximately 8 percent of the investors BHA analysts spoke with were considering green technologies. Nearly 10 percent of the investors that were researching hedge funds were interested in clean tech and alternative energy investments. Finally, close to 20 percent of all investors researching new private equity commitments were looking into the clean tech and alternative energy sectors.

The Copenhagen Climate Conference has pushed climate change politics back to the forefront as the economic recovery continues, and governments are proposing drastic cuts to carbon emissions. The European Union is looking to reduce greenhouse gas emissions to 30 percent below 1990 levels by 2020, and the United States aims to cut carbon emissions to 17 percent below 2005 levels by 2020. These goals are going to make for some attractive opportunities in the near term and investors are keeping their ears to the ground. Climate change is creating prospects for high returns from alternative investment fund managers.

he U.N. Climate Change Conference is wrapping up after two weeks of discussion, leaving many questions unanswered. However, the agenda of climate change mitigation has put the spotlight on some interesting opportunities for the enterprising investor. As countries craft policies to reduce their carbon emissions, entrepreneurs are developing businesses around green technologies. These same policies that will cut emissions will also spur economic growth. As guidelines change and carbon emission reduction gains more momentum, investors are poised to take advantage of this emerging sector. Alternative energy and clean tech are two green technology sectors that are attracting strong interest among alternative investors. Groups investing in these sectors range from government pension plans to funds of funds. These investors are not only seeking private equity funds but also hedge funds that have green tech strategies, such as carbon trading and long/short equities that focus on the clean tech space. During the month of November, approximately 8 percent of the investors BHA analysts spoke with were considering green technologies. Nearly 10 percent of the investors that were researching hedge funds were interested in clean tech and alternative energy investments. Finally, close to 20 percent of all investors researching new private equity commitments were looking into the clean tech and alternative energy sectors.

The Copenhagen Climate Conference has pushed climate change politics back to the forefront as the economic recovery continues, and governments are proposing drastic cuts to carbon emissions. The European Union is looking to reduce greenhouse gas emissions to 30 percent below 1990 levels by 2020, and the United States aims to cut carbon emissions to 17 percent below 2005 levels by 2020. These goals are going to make for some attractive opportunities in the near term and investors are keeping their ears to the ground. Climate change is creating prospects for high returns from alternative investment fund managers.

At a recent private equity summit in Sao Paulo, Brazilian-based alternative managers and investors were excited about the investment opportunities that are available and those that they feel will become available in the near future. One sector that is poised to offer significant opportunities is agriculture. Crops such as soybeans and cotton grow especially well in Brazil’s temperate climate. The country is a major agricultural exporter and is the second largest exporter of soybeans after the United States. According to Agriculture.com, in November 2009 the Brazilian government reported that in the North Center region of the country, over 20,000 hectares (49,000 acres) was undeveloped and available to be turned into functioning plantations.1

In addition to agriculture, Brazil’s thriving economy is driven by its large and well-developed mining, manufacturing, and service industries. Currently, of all Latin American countries, Brazil has the largest economy and is rapidly expanding its presence in world markets. This week, The Brazilian Census Bureau reported that consumer demand continued to lead a recovery in Latin America’s largest economy. Brazilian retail sales rose significantly last quarter, marking the sixth consecutive month of gains.2

The country has weathered the global financial meltdown fairly well; capital inflows are strengthening and the Real has resumed appreciating. A company that sources real estate investment opportunities in emerging markets around the world explains why Brazil was nearly unaffected by the global economic downtown: “Brazil’s excellent natural resources, which include an estimated 40-50 billion barrels of oil, make it one of the most self-sufficient countries in the world. Negative trade motions, caused by either falling currencies, which make exportation too expensive for other nations; or growing currencies, which result in importation being too expensive due to bad exchange rates, do not affect Brazil in a massive way. This is because Brazil’s economy is only 20% trade, so even a 20% drop in this foreign trade would only leave 4% of the country’s economy damaged. As a result, Brazil has been largely unaffec ted by the credit crunch.”3

Another reason Brazil was less affected by the financial crisis than other countries was because most if not all of its banks maintained very little leverage and had almost no exposure to exotic assets like derivatives—the chief catalyst of the financial crisis.

Many funds of funds, family offices, and university endowments said they were eager to explore and evaluate new opportunities within the region. These investors have determined that the most lucrative and attractive investments are no longer in developed regions but rather in developing and emerging economies that foster unique opportunities. They see Brazil as one of the fastest growing emerging markets in the world and believe it is poised to become a leading player in world markets.

1 http://www.agriculture.com…

2 http://bric-news.com/index.php?op=ViewArticle&articleId=4&blogId=1

3 http://bric-news.com/

Many investors place capital in funds of hedge funds in order to gain exposure to non-traditional asset classes. One group of investors that has shown a particular interest in this strategy of late has been wealth advisors. During the fourth quarter, this investor category has accounted for 33 percent of BHA’s fund of hedge funds mandates.

Wealth advisors typically have smaller investment teams and do not have the capacity to analyze a wide range of hedge funds. Therefore, they invest in funds of hedge funds to gain exposure to alternative investments. Increasingly, many wealth advisors are investing in multi-manager funds to provide clients with a broader choice of strategies—investment approaches in which the advisors may not have experience.

For example, a large wealth advisor told BHA that it uses funds of hedge funds to have a diverse range of investment opportunities. Currently, the firm is interested in multi-strategy fund managers that have a global focus.

Another wealth advisor is looking to invest in strategy-specific funds and anticipates investing in a fund of CTA funds poised to perform well in 2010. Therefore, it is willing to hear from funds of CTA funds that have short-term, intermediate, and long-term holding periods. Funds should have 10 to 20 underlying managers and must invest across the CTA spectrum.

Increasingly, wealth advisors are adding funds of hedge funds to their clients’ portfolios as a way to expose them to the hedge fund market and many advisors continue to use these funds after they prove they provide diversification and good performance.