Professional Documents
Culture Documents
Hedge Fund Book V4
Hedge Fund Book V4
By Richard Wilson
I truly believe that if you spend your time helping others get what they
need or want that the relationships you build will bring you what
you need. In this spirit Im offering the Hedge Fund Blog Book for
free and to date over 34,425 professionals have downloaded this
resource.
- Richard Wilson
Richard Wilson
Richard Wilson is a hedge fund consultant, author and trainer. Richard is the
founder of the Hedge Fund Consulting Group and a 23,000+ person networking
association, the Hedge Fund Group (HFG).
Richard has advised and consulted with
over 125 hedge fund managers and
investment funds and regularly works with
them on hedge fund marketing, training
and prime brokerage related projects. Richard has 7 years of experience in risk
consulting, marketing money managers and completing prime brokerage/capital
introduction activities. The Hedge Fund Consulting Group offers these services:
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Marketing & Sales: Materials, Capital Raising help, Operational, Risk and
Legal Evaluations Institutionalization or pre-marketing assistance
HedgeFundBlogger.com
this book is largely unformatted and and un-edited. No warrants are provided as
to the accuracy of this information and it is simply provided as a free tool for
those who would like to read hundreds of m y blog posts from
HedgeFundBlogger.com within a single document.
Disclaimer: The content of this blog/book is in no way a means of financial
advice or a solicitation to sell hedge funds. None of what I write in the
Hedge Fund Consulting Blog is ever an offer of financial or investment
advice or products in any way. There is no guarantee that the information
included here is accurate, complete or updated it simply provide a high level
overview of the industry.
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Table of Contents
Part 1: Due Diligence______________________________Page 6
Part 2: Hedge Fund Careers________________________Page 18
Part 3: Regulation & Compliance ____________________Page 65
Page 4: Hedge Fund Strategies______________________Page 83
Part 4: Starting a Hedge Fund_______________________Page 110
Part 6: Hedge Fund Marketing_______________________Page 126
Appendix A: Service Provider Listings__________________Page 194
Appendix B: Additional Hedge Fund Resources___________Page 197
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When discussing risk management in the hedge fund industry, obtaining a clear
definition of the different types of risk exposure for each kind of hedge fund is important.
Considering the wide range of objectives and diverse trading instruments used by each
specific type of hedge fund, it is important to note the varying risk concerns which apply
to different types of hedge fund managers.A good consolidation of the results in a matrix
form was developed by Jaeger and Sfvenblad , who define the different risk exposures
by each type of hedge fund as follows (click to enlarge the image below):
Using the table above, but now with a investors perspective, it should be also clear that
the risks associated to investing in a long-short hedge fund are completely different from
those associated to, for instance, investing in a Fixed-Income Arbitrage hedge fund.
Thereby, for both hedge fund managers and investors, uncovering the different
dimensions of risk present in each hedge fund portfolio becomes the first step towards
managing risk effectively.
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Read more articles like this within the Hedge Fund Due Diligence Guide.
*I have been collecting these hedge fund due diligence resources over the past 18
months and I'm providing them with the hope that they will help construct a relatively
holistic view of what hedge fund due diligence is about along with provide a few example
RFPs and tools to use while conducting due diligence on hedge fund managers. This is
not an exhaustive list and the information anywhere, or within the linked sites, should not
be treated as investment advice or a substitute for financial advice of any type. This is
simply an aggregation of online hedge fund due diligence resources. I have only listed
21 resources here so far, I hope to make this more robust, if you have something you
think should be added here please email me at Richard@RichardCWilson.com.
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In this case the hedge fund offering documents contained many material misstatements
including materially false and misleading statements in offering materials and
newsletters about, among other things, the Funds holdings, performances, values and
management backgrounds. For example the complaint alleges:
Specifically, both PPMs represented that most investments made by Partners and
Offshore would trade on listed exchanges. In truth, a majority of those funds
investments were and are on unlisted exchanges such as the OTCBB or pink sheets.
Furthermore, the Partners PPM stated that investors would receive yearly audited
financials upon request. Partners has not obtained audited financials since the year
ended 2000 and repeatedly refused at least one investors requests for audited
financials for the year ended 2001.
2. Make sure all appropriate disclosure relating to personnel are made.
Hedge fund attorneys will usually spend time with the manager discussing the
employees of the management company and their backgrounds. During this time the
attorney will ask the manager, among other questions, whether any person who is part of
the management company has been involved in any securities related offense. In this
case there were two specific items, which the manager should have disclosed in the
offering documents and other collateral material:
Failed to disclose that a consultant to the management company was enjoined, fined
and also barred from serving as an officer or director of a public company for five years
for his fraudulent conduct involving, among other things, misallocating to himself
securities while serving as CFO and later president of a publicly traded company.
Failed to disclose a member of the funds board of directors was barred from associating
with any broker or dealer for 9 years.
3. Take care when going outside stated valuation policies.
Many hedge fund documents have stated valuation policies but then allow the manager
to modify the valuation, in the managers discretion, to better reflect the true value of the
securities. However, when a manager uses this discretion, the manager should have a
basis for the valuation. Such valuation should not be based on an artificially inflated
value of the asset. To be safe managers should probably have some internal valuation
policies which should be in line with generally accepted valuation standards for such
assets. I found the following paragraph from the SECs complaint particularly interesting
(emphasis added):
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While many of the examples above are so egregious they probably do not need to be
listed on a do not list, you should make sure you do not engage in any of these
activities. Additionally, if you do make some error or mistake (for example, if a valuation
turns out to be incorrect or inaccurate), immediately contact your attorney to create a
plan to inform investors about the incorrect or inaccurate statements. A mistake can
generally be cured, all out fraud cannot.
Guest post published in partnership with the Hedge Fund Law Blog
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Essentially, institutions prefer doing business with hedge fund managers that operate as
they do. This means being highly organized, transparent, and honest. The most
successful hedge funds will be able to match these qualities while also performing at the
same high level that originally attracted investors.
Read more articles like this within the Hedge Fund Due Diligence Guide.
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Fund of Fund
Fund of Fund Due Diligence
I recently found this fund of fund due diligence article, which you might have seen a link
to within my hedge fund due diligence guide. Within this article Jim Tomeo, Chief
Operating officer and Senior Portfolio Manager of SSARIS Advisors, presents some
interesting information regarding hedge funds asset allocation process. He talks a lot
about building a portfolio using a bottom up / top down approach and the due diligence
that requires. This approach includes taking into consideration two different investment
philosophies:
Convergent Strategy The value of an equity is based on the companys future
expected earnings, future growth rate of these earnings, and uncertainty of these
predictions.
Divergent Strategy Past patterns in security prices can forecast future price patterns.
His process calls for 50% of returns coming from the convergent strategy and 50%
coming from the divergent strategy. It also emphasizes the importance of proper pricing
on hedge fund success. Another point that Jim stresses within this article is the
importance of constantly evaluating hedge fund managers. This means frequent hedge
fund manager due diligence:
Reviewing internal structure / procedure
Background checking
Review of hedge fund documentation including memorandums
Jim believes that taking cautions in terms of pricing, manager selections, in addition to
sticking with a bottom up and top down approach can help hedge funds endure through
tough times and succeed.
Read more articles like this within the Hedge Fund Due Diligence Guide.
Additional Resources:
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experience requirements while filling their open hedge fund jobs, they simply look for
people who are hungry, humble, and smart.
Quick Links: Hedge Fund Employment Guide
Hedge Fund Job Listings
Richard
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Job Listings
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CHA Designation
CHA Investment Designation | Update
A class of over 60 participants are currently preparing for
the CHA Level 1 Exam next month. The Chartered Hedge
Fund Associate (CHA) Designation Program continues to
grow despite the recent financial crisis. Our team is seeing
an increased interest from participants considering the CHA
Designation as the hedge fund industry job market becomes more competitive. We are
also being contacted by many hedge fund managers who are looking to ensure they
have a broad foundation of knowledge on which to run their business.
There are currently over 50 hedge funds and fund of hedge funds which have agreed to
join our Advisory Board and over 1,500 individuals who have signed up to learn more
about the CHA Designation through our Email Alerts.
The Hedge Fund Group (HFG) is preparing to open registration again on January 15th,
2009 to the first 200 participants who register for the program. The new website for the
designation will be available shortly. For now information on the program can be found
here: CHA Overview.
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4 Career Tips
If someone wanted to start a hedge fund career, what a re 4
pieces of advice you would give them?
5.
designation.
6. Figure out if your passion is in trading, analytics or marketing & sales. Choosing your
specialty area early will help you more quickly develop the experience and skill
sets needed to do well in that type of position.
7. Never do anything un-ethical. If you are sharp and passionate you have no need to
ever cut corners. Avoid people that do at all costs.
Do you own compliance and due diligence research. Look up your potential or current
boss within the FINRA or SEC records to see if they have marks against them. Meet with
a compliance lawyer yourself to make sure your activities are all legal with securities
laws. Do your own homework because many times nobody is going to do it for you.
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Looking for a hedge fund internship? Send me your resume, the dream hedge fund job
you would like to have in 3-24 months and what type of internship you are looking for
(time commitment and type of work). I have enough work for 3-4 unpaid hedge fund
internships and connections to place 1-2 students or professionals into a paid hedge
fund internship.
If you were to start a hedge fund internship with me the possibilities would include:
8. Hedge Fund Internship focussed on Strategy Analysis
9. Hedge Fund Internship focussed on Analytics
10.
11.
12.
Hedge Fund Internship focussed on Hedge Fund News Tracking & Synthesis
13.
Hedge Fund Internship focussed on Hedge Fund Article & White Paper
Development
14.
that many experienced hedge fund managers don't have a firm grasp on)
Indicating which of the above areas look most interesting to you might be a good way to
start a discussion. No matter what you work on if you put in the time I can assure that
you will know the basic landscape of the hedge fund industry and are up to speed on
recent trends and norms that will help you present yourself as a professional in the
industry when you apply for hedge fund jobs. I look forward to speaking with you.
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I found Hedge Me to be a great guide to beginning a career in the hedge fund industry.
Some have bought Hedge Me simply for the comprehensive list of hedge fund
employers and recruiters that is included in the book. The hedge fund industry is a very
competitive place to work and by reading this guide you can increase your chances of
getting a job as well as possibly avoiding the mistake of working in the wrong type of
hedge fund position.For example this book provides insights into the day-to-day activities
of hedge fund traders, analysts and sales professionals. This shows you what their
schedules and responsibilities look like and it can help paint a clearer picture that is
sometimes hard to piece together through reading articles online and conducting
informational interviews.Hedge Me is also great for statistical references on what you
can expect to get paid and how large the industry is. If nothing else you will have hard
numbers to go off of and if you can negotiate $35 more pay than that alone has paid for
the price of this book.
Enjoy this book review? Read a few more by visiting our Investment Book Reviews
Directory.- Richard
Hedge Me
Claude Schwab
Privacy Information
To read dozens of additional articles related to Hedge Fund Jobs like this one please
visit our Hedge Fund Employment Guide.
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Investment Internships
Open Investment Internship
I have two investment internships available that would start sometime this summer.
These roles would largely consist of doing research on different hedge fund & private
equity investment strategies, profiling top hedge fund managers and helping construct
niche guides to the hedge fund industry based on personal topics of interest. I am
looking for hungry, pro-active, computer literate and well written interns who are open to
working on a variety of projects If you are interested in this type of an investment
internship opportunity please email me at Richard@RichardCWilson.com.
Hedge Fund
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Forum
Hedge Fund Forum - HedgeFundMessageBoard.com
As many of you already know there is a growing hedge fund forum connected to this
hedge fund blog. To make it easy for you to get there I have purchased
HedgeFundMessageBoard.com for this forum and you may now use that domain
name to reach this message board on hedge funds.
Since we live in a time of much hedge fund regulation please do not post any
performance figures or advertisements on this forum - it should be used to network,
share resources, ask questions, announce events and provide feedback for the Hedge
Fund Group (HFG) and this blog.
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With hedge funds now a mainstay in the public eye many MBA graduates and
accounting/audit professionals are starting a hedge fund career with hopes of increased
salaries and less big box corporate pains.
If it would help you find a Hedge Fund Job please visit HedgeFundGroup.org and join
our networking association for free. We have over 13,500 members in the group so far
and you may contact anyone there at no cost.
Also, take a look at the CHA Designation Program offered by the Hedge Fund Group
(HFG). I have helped create this certification program and it is designed for hedge fund
managers, hedge fund professionals and those who work with hedge funds.
I will be posting more on hedge fund career tips, hedge fund career guides and hedge
fund career experts over the next couple of quarters. Please see below for links to
additional resources.- Richard
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There are literally hundreds of hedge fund related associations and organizations around
the world. Many of you may already be part of the Hedge Fund Group (HFG) or your
own local city specific hedge fund association but I thought it would be useful to create a
listing of all hedge fund associations in existence. This list will start small and hopefully
grow each quarter as I get more inquiries from existing hedge fund associations and
professionals such as yourself. Please email me at Richard@RichardCWilson.com if you
would like to increase the exposure for your hedge fund or alternative investment
association or organization.
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Hedge fund industry has a relatively high turnover rate. This is often due to talent
poaching, performance drops, mergers & acquisitions and over-sized bonus envy or
complacency. This page has been created to announce the availability of hedge fund
professionals who would like to be contacted by hedge fund managers, alternative
investment and hedge fund consulting firms and hedge fund recruiters that are looking to
fill open positions.
Currently Available Hedge Fund Analysts, Traders, Associates and Portfolio
Managers:
15.
16.
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18.
Junior Hedge Fund Trader: A highly motivated and goal oriented college
graduate in Economics seeking a position with a hedge fund in New York. I have
experience working in the financial services industry with UBS, where I obtained
research and financial analysis on mutual funds, ETFs, and stocks in order to
provide information to financial advisors and clients, prepared performance and
other financial reports for over $350 million in accounts for client reviews, created
and maintaining spreadsheets and databases. I have experience trading a
personal account focusing on mostly large-cap and small/micro-cap stocks where
I have been short biased, trading options, and now getting involved in futures
trading as well as experience managing leverage. Cell: 440-669-7048 email:
wiel.1@osu.edu
If you would like to have your 3 sentence bio and contact details added to this list please
send an email to Richard@RichardCWilson.com to set it up.
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Investment Books
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21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
Top 10 Hedge Fund Books
Rainmaker
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Investment Certification
Chartered Hedge Fund Associate (CHA)
The Hedge Fund Group (HFG) has grown to over 15,000 members with an average of
50 new members joining each day. This international hedge fund association is free to
join and we hope to be adding new resources to HedgeFundGroup.org each quarter.The
Hedge Fund Group (HFG) offers an investment certification called the Chartered Hedge
Fund Associate (CHA) Program. It is a two level certification program aimed at helping
hedge fund career professionals, financial professionals looking to work within the hedge
fund industry.
Level 1 of the CHA Designation educates participants within 6 learning modules related
to hedge funds - providing them with a strong foundation of knowledge covering many
areas of the industry. Level 2 helps participants specialize within one area of their choice
which includes due diligence, marketing and sales or analytics.
The name Chartered Hedge Fund Associate was chosen over Charted Hedge Fund
Analyst for this investment certification because there are dozens of types of hedge fund
jobs and "analyst" is only a small segment of the total job market. This designation seeks
to help hedge fund professionals in the areas of portfolio management, trading,
marketing, prime brokerage, investors relations, recruiting, due diligence, fund of funds
as well as analytics.
To learn more please visit http://CHADesignation.org
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While recent market problems mean many in the financial sector will be out of work or
taking home smaller bonuses, theres still wealth waiting for those in hedge funds. That
wealth attracts many entrepreneurs, workers and students to hedge fund employment.
Why work for a hedge fund?
- Working at a hedge fund requires varied skills and abilities. Whether involved in
designing a fund, it strategies or its sales, hedge fund work can be challenging and
invigorating. Not only will you manage or oversee a portfolio, youll have to make sure
youre serving the interests of you clients while ensuring your corporate practices are
tight, legal and profitable.
- Hedge funds can cater to your type of experience. Funds require people skilled in
accounting, investment banking, economic analysis and business. Theres room for
everyone.
- Unique corporate cultures. The smallest funds may be run by one or two busy traders;
the largest by hundreds. Seek the one thats best for you.
- A base salary will start around six figures.
- And the best is yet to come: the real moneys in the bonus, which can reach another six
figures.
The downside? If your fund doesnt earn, youll miss out on a large part of your wages.
But that incentive is probably the ideal thing for someone skilled in business, dedicated
to performance and eagerly seeking profit.
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One of the most popular economics blogs today is The Big Picture which recently
published a story on hedge fund salaries. Last year each of the top 10 earners brought
home over $500M each 5 hedge fund managers earning over $1B in profits.
I happen to agree with The Big Picture's take on this issue which you can read about
here if you have a minute.
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$3 billion
$700-800 million
.
10/Paul Tudor Jones (Tudor
Investment) - $600-700 millio
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Investment Training
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I'm not even 30 years old yet so I'm going the third party marketing route because I want to be able to have
knowledge of the DNA and powerful relationships in every major distribution channel and I want figure out
where the real money and momentum is and be able to shift my focus to that point. I believe it is harder to get
a 3PM job because most want you to have a book of business or solid relationships, but it can be done. To
work in my first third party marketing position I worked for free for 3 weeks to prove myself and took a big cut in
pay coming in the door, but now I'm in my dream job getting experience that I believe will continue to be more
valuable each year.
Interested in hedge fund marketing? Read dozens of more hedge fund marketing & sales articles along with
details on third party marketing within the Hedge Fund Marketing Guide.
In the hedge fund industry you have one name and one reputation. If you ruin that you could have influential
people in the industry refusing to do business with you for 15-20 years after their initial opinion is formed. In
such a competitive close vested industry where large profits can be made the temptation to cut corners or look
past fiduciary duties is sometimes too much.The FBI recently had agents posing as a Florida-based hedge
fund manager to nab 10 individuals in 5 kickback schemes connected to securities sales. The SEC charged 10
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individuals and the U.S. Attorneys office charged six with criminal offenses.In each case the posing hedge fund
manager told the targets that their actions must be kept secret because it violated his fiduciary duties, making it
explicitly known that what was going on was illegal and un-ethical. This case illustrates the Commissions
ability to work together with criminal authorities in creative ways to uncover fraudulent schemes and to protect
our markets, Linda Chatman Thomas, the head of the SECs enforcement division, said.Bottom Line: If you
are smart enough and hard working enough to be successful then you don't need to ever cut corners and
blatantly break securities laws. Innovation and relationships are the competitive advantage that should make
you extremely profitable, not cheating the system.
Interested in hedge fund marketing? Read dozens of more hedge fund marketing & sales articles along with
details on third party marketing within the Hedge Fund Marketing Guide.
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The free hedge fund newsletter that I produce is different from other great newsletters on hedge funds that you
might read. I don't use RSS news feeds and I don't re-hash stories first reported on by other organizations. For
better or worse, I have decided not to compete with Google News and only write about and aggregate
educational materials on the hedge fund industry. Each day I write 1-5 articles on hedge funds, and what is
written is sent out the next morning via the hedge fund newsletter.
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analysts, due diligence professionals, private wealth management executives, students and professors. Learn
more at http://CHADesignation.org
Fitch Training - Hedge Funds A Credit Perspective
JG Advisory, LLC
http://www.difm.uk.com/
http://www.ibtraining.com/
http://www.nyif.com/ / http://www.ftknowledge.com/ (sister companies)
http://www.risklatte.com/training/
http://www.stcusa.com/
http://www.trainingthestreet.com/
http://www.wallstreetprep.com/
http://www.globecon.com/
http://www.gfmi.com/
http://www.matchettgroup.com/FinancialLearning/
http://www.wallst-training.com/
http://www.bppfinancialservices.com/
http://www.kaplanfinancial.co.uk/
http://www.wallacect.co.uk/training.html
http://www.fintuition.com/
http://www.intuitionweb.com/ e-learning and classroom instruction
http://www.zoologic.com/ e-learning and classroom instruction
http://www.acf-financialtraining.com/ e-learning and classroom instruction
http://www.ciftweb.com/jsp/website/index.jsp e-learning and classroom instruction
http://www.complinet.com/connected/solutions/regulatory-insight/e-learning/ e-learning and classroom
instruction
http://www.eukleia-training.com/index.php?page=Home e-learning and classroom instruction
http://www.absolutelytraining.com/ e-learning and classroom instruction
http://www.epic.co.uk/ e-learning and classroom instruction
http://www.inmarkets.com/ e-learning
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http://www.chisholmroth.com/ e-learning
http://www.statmanconsulting.com/
http://www.stalla.com/
http://www.schweser.com/
http://www.knopman.com/
http://www.greico.com/
http://www.firesolutions.com/
http://www.terrapinnfinancial.com/Gateway.aspx
http://www.gftt.com/
http://training.efinancialcareers.co.uk/
http://www.absolutelytraining.com/index.shtml
http://www.redcliffetraining.co.uk/index.html
http://www.wbstraining.com/
http://www.bgconsulting.com/
http://www.garp.com/
http://www.citycompass.org/Default.asp
http://www.bgconsulting.com/
http://www.mdatraining.com/
http://www.ctguk.com/
http://www.enbconsulting.com/
http://www.londonfs.com/
http://www.dcgtraining.com/default.asp
http://www.iff-training.com/default.php
http://www.waters-training.com/
http://www.euromoneytraining.com/
http://www.taylorassociates.co.uk/
http://www.reedlearning.co.uk/default.aspx (a little generic much like the U.S. American Management
Association)
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http://www.passpro.com/
http://www.infoline.org.uk/
http://www.dnatrainingconsulting.com/
http://www.first-finance.com/
http://www.londonmet.ac.uk/lfa/
http://www.lywood-david.co.uk/index.htm
http://www.cclcitytraining.com/
http://www.value-consultants.co.uk/index.htm
http://www.moodys.com/cust/prodserv/prodserv.aspx?source=StaticContent/Free%20Pages/Products%20and
%20Services/MoodysTrainingServices/Moodys%20Training
%20Services.htm&viewtemplate=/templates/mdcHeaderFooter.xml
http://www.icmacentre.ac.uk/
http://www.foranfinancial.com/flash.html
http://www.gpworldwide.com/
Financial Certification
Please visit HedgeFundBlogger.com or HedgeFundGroup.Org for more information.
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12.
13.
Hedge Week
14.
15.
16.
HedgeWorld.com
17.
HedgeBoard
18.
19.
20.
21.
22.
HFMA
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23.
24.
HedgeFundBookstore.com
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HedgeCO
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HedgeFundPR.net
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TheHedgeFundLibrary.com
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HedgeFundJobsOnly.com
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HedgeFund.net
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51.
About.com on Hedge Funds
Hedge Fund Conferences
I recently wrote a hedge fund career related article for Investopedia.com on how to get a job at a hedge fund.
This is a short two page article which details from my experience what tangible steps one can take to work in
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The first is a Hedge Fund Operations Associate position and the other is a Hedge Fund Middle Office
Associate position. To view both please see this page: Finance and Accounting Jobs.
-Richard
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Please see below for open portfolio management jobs within the
hedge fund industry:
Position #1: Coming Soon - Please email Richard@HedgeFundGroup.org to add your open portfolio
management position here now.
Position #2: Coming Soon - Please email Richard@HedgeFundGroup.org to add your open portfolio
management position here now.
Not interested in these positions but interested in looking at other open hedge fund jobs? Please see
HedgeFundBlogger.com's Hedge Fund Job Listings page.
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Please see below for open finance and accounting positions within the hedge fund industry. We currently have
two positions list here for a Hedge Fund Accountant & Hedge Fund Operations Associate.
Open Position #1: Hedge Fund Accountant (New York Tri-State Area)This firm is
expanding their middle office and seeking an experienced accountant who has public accounting experience
for the financial services/alternative investment space, and wants to work for a growing Hedge Fund that's
been around for over 15 years. Must be a entrepreneurial and want to help grow the business, brining things to
the next level.
1.Job Description:You will help with trade support, i.e. work with the traders and the PMs, reconcile
breaks, talk to clients, settle trades, etc. You will also help with generating the Financial Reports and
Performance Reporting for the fund's portfolios.
2.Required Experience: You MUST have public accounting experience, or be presently work for a hedge
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fund in a financial reporting/performance reporting capacity. We are looking for someone with 2-6yrs
experience who can help grow a business. CPA is a plus.
3.Compensation: $80K-125K + bonus
Please see below for open marketing, sales and investor relations jobs within the hedge fund industry
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This senior position reports to the firm's co-founder who provides general guidance and supervision. This is an
opportunity to participate in a high growth organization by overseeing fundraising activities and investor
relations. Candidates efforts will make an impact every day with the Firms Limited Partners.
If you are a genuinely a top performing institutional sales and relationship management professional, then you
will have the opportunity to work with world class leaders in the VC and LP communities while making a direct
impact on the Firms continued growth and success. You will be excited by the opportunity to be pro-active in
strategy associated with new fund creation, raise significant funds from institutions such as; Private Banks,
Banks, IFAs, Wealth Managers, PE Funds, Fund of Funds, Hedge Funds, Pension Funds while also
overseeing all Limited Partner communications and programs. The work environment is team oriented and
entrepreneurial.
Position Description:
The hired executive will be responsible raising capital for the Firms new funds while overseeing investor
relations for current limited partners. The emphasis of this senior high profile, high touch role is to lead fund
raising activities including both development of new investor targets as well as due diligence materials
development and follow up. Building and maintaining relationships (and tracking) of existing and potential
investors, keeping investors informed through proactive, comprehensive IR programs and identifying and
educating new investors about new and existing funds are critical to the success of the role. Preparing
presentations, coordinating relationship management internally and externally and monitoring the success of
fund raising programs are also included in scope of this position.
The ability to thrive in a fast paced corporate environment is essential. Must have excellent writing, planning,
organizational and problem solving skills and be adept at influence management. The ideal candidate must be
capable of establishing internal and external networks and working on cross-functional teams and be a selfstarter who functions well independently or within a team.
Extensive fund raising, investor relations, a detailed understanding of the workings of the venture capital and
private equity markets and possessing strong presentation and diplomacy skills are essential for the hired
candidate.
Demonstrated experience selling to sophisticated institutional and private investors, with a track record of
demonstrating measurable and meaningful results at raising capital, building brand equity and developing
visibility with all organizations familiar with alternative assets.
Specific Requirement & Qualifications
Strong relationship management skills, understanding and ability to explain technology, and have a wide
ranging network are requirements for this position.
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Must be self-directed, highly motivated and able to prioritize workload and willing to take on additional
responsibilities rapidly, based on shifting needs and requirements.
Minimum of 7-10 years prior experience in fund raising and investor relations.
Successfully raised Venture funds (more than 100 M) Scope of activities covers all the fundraising activities
(PPM, LP road shows, Investors Relations)
Tracking, recording and analysis of relevant fund raising information and trends
Understanding of venture capital/private equity financial concepts is highly desirable (taxation, partnership
accounting and structures, investment metrics, securities laws). Strong financial analysis skills.
Strong client relationship skills and evidence of building lasting relationships with an institutional client base.
Ability to quickly analyze, grasp and communicate financial and economic information about the industry, the
Firm and its portfolio companies
Strong quantitative skills and detail oriented with roll-up-your-sleeves attitude
Excellent written and verbal communication skills to support interaction with the Firm's institutional investors.
Business process development and management skills. Proven experience in quality sensitive operations.
Computer literate with knowledge of and experience in database applications and analysis tools, Excel, Word,
PowerPoint and contact manager software. Knowledge of private equity management systems (e.g. Investran)
highly desirable.
Undergraduate degree or higher in a business related field
Ability to travel (moderate amount; domestic and international)
Direct prior experience from a pension fund, state fund system, insurance company, endowment, foundation,
or fund of funds is also desirable
For additional information and to send your confidential CV, please contact:
Ellen Hathaway
Partner, Exceptional People, Inc.
707-766-6545 office
415-730-4466 cell
eahathaway@earthlink.net
www.exceptionalpeople.com
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Third Party Marketing Internship - 2 individuals needed to help conduct research, build resources
and write articles on the hedge fund third party marketing industry. To apply please send an email to
Richard@HedgeFundGroup.org
Position #3: Coming Soon - Please email Richard@HedgeFundGroup.org to add your open portfolio
management position here now.
Not interested in these positions but interested in looking at other open hedge fund jobs? Please see
HedgeFundBlogger.com's Hedge Fund Job Listings page.
More Resources
Hedge Fund Terms Here are definitions to over 20 hedge fund terms.
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Due Diligence A short introduction to hedge fund due diligence along with 20 links to related due
diligence resources.
Geographical GuideA series of guides by region are being created and will be posted here shortly.
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As part of an effort to offer more diverse hedge fund resources on HedgeFundBlogger.com we are
now publishing some regulatory, compliance and investment law related articles to the site. In the
past we have published some articles related to hedge fund regulations, but we have not done so on
a regular basis. We will now be publishing at least two articles a week on the topic.
Here is another SEC hedge fund regulation resource that I'm adding go the hedge fund due diligence
guide. The Securities and Exchange Commission offers a caution before investing in hedge funds.
The key message is: be aware of the risks. First, the SEC recommends reading the fund's prospectus
to understand the fund and whether it suits you. Also, it advises to be aware of the fees the hedge
fund charges which cut into the investors' returns.
This resource emphasizes the research aspect of due diligence and offers tips on what to investigate
before investing in a hedge fund.
Click here to view the article published by the SEC.
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As with all articles on HedgeFundBlogger.com all content provided should never take the place of
legal advice with in-house counsel or qualified outside legal experts.
Performance results are the ribbons of the hedge fund industry. In order to raise institutional money
for your hedge fund you will need good performance results. Even hedge fund managers who will not
be focusing on raising money from institutional investors will need to have performance results in
order to market the hedge fund. Performance results are usually displayed in a hedge fund pitchbook
format, a tearsheet format and/or with monthly or quarterly performance reports to investors.
Whenever performance results are included the manager must make sure that the proper
performance disclosures accompany the results. As a routine matter, all hedge fund performance
results and advertisements should be reviewed by a hedge fund attorney.
SEC Guidance - Clover Capital No-Action Letter
The SEC has authority under the anti-fraud provisions of the investment advisers act (which apply to
both registered and unregistered hedge fund managers) to police the performance results of hedge
fund managers. [HFLB note: please see "Basis of SEC authority" below for explanation.] Under this
authority the SEC has provided some guidance on this subject through the Clover Capital no-action
letter. Clover Capital is not famous because of the position of the staff with regard to a certain party,
but because the staff went further and provided guidelines for all managers in how performance
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results should be disclaimed.
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The Clover Capital letter is notable for a few reasons including that (i) it provides guidance on both
model results (sometimes referred to as backtested) and actual results and (ii) it requires that
performance results be present net of fees. While some aspects of the Clover Capital requirements
have been softened, in certain specific fact circumstances, in later no-action letters, Clover Capital
remains the central source of guidance for performance reporting requirements. These requirements
(with footnotes omitted) are broken down below.
Model and Actual Results
With regard to model and actual results, the staff believes that a hedge fund manager is prohibited
from publishing an advertisement that:
Fails to disclose the effect of material market or economic conditions on the results portrayed (e.g.,
an advertisement stating that the accounts of the advisers clients appreciated in the value
25% without disclosing that the market generally appreciated 40% during the same period);
Includes model or actual results that do not reflect the deduction of advisory fees, brokerage or other
commissions, and any other expenses that a client would have paid or actually paid;
Fails to disclose whether and to what extent the results portrayed reflect the reinvestment of
dividends and other earnings;
Suggests or makes claims about the potential for profit without also disclosing the possibility of loss;
Compares model or actual results to an index without disclosing all material facts relevant to the
comparison (e.g. an advertisement that compares model results to an index without disclosing
that the volatility of the index is materially different from that of the model portfolio);
Fails to disclose any material conditions, objectives, or investment strategies used to obtain the
results portrayed (e.g., the model portfolio contains equity stocks that are managed with a view
towards capital appreciation);
Fails to disclose prominently the limitations inherent in model results, particularly the fact that such
results do not represent actual trading and that they may not reflect the impact that material
economic and market factors might have had on the advisers decision-making if the adviser
were actually managing clients money;
Fails to disclose, if applicable, that the conditions, objectives, or investment strategies of the model
portfolio changed materially during the time period portrayed in the advertisement and, if so,
the effect of any such change on the results portrayed;
Fails to disclose, if applicable, that any of the securities contained in, or the investment strategies
followed with respect to, the model portfolio do not relate, or only partially relate, to the type of
advisory services currently offered by the adviser (e.g., the model includes some types of
securities that the adviser no longer recommends for its clients);
Fails to disclose, if applicable, that the advisers clients had investment results materially different
from the results portrayed in the model;
Actual Results
Additionally, with regard to actual results, the staff believes that a hedge fund manager is prohibited
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would have to comply with the requirements of these paragraphs.
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An Overview
Here is a short well-written article on hedge fund regulations and why additional regulation targeting
hedge funds may never be put in pace
Hedge fund managers oversee $1.9 trillion in assets, but no one knows what they invest in or even
what those assets are actually worth. That's because hedge funds are not regulated and
consequently aren't required to make the same detailed financial disclosures that are required of
publicly traded companies. This mystery product comes with a Rolex pricetag. Hedge fund managers
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sure that statements to investors are accurate.
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Enough said.
While many of the examples above are so egregious they probably do not need to be listed on a do
not list, you should make sure you do not engage in any of these activities. Additionally, if you do
make some error or mistake (for example, if a valuation turns out to be incorrect or inaccurate),
immediately contact your attorney to create a plan to inform investors about the incorrect or
inaccurate statements. A mistake can generally be cured, all out fraud cannot.
Guest post published in partnership with the Hedge Fund Law Blog
Below is a article from All About Alpha regarding pending regulations on the hedge fund industry and
how they may target prime brokerage firms. From a cost perspective this may make sense since this
is a central point of potential risk control, but I would be surprised if regulators go down this road. I
believe regulations will stay at the security level and then target banks more directly than hedge fund
managers.
While the average hedge fund is small and uses a very small amount of leverage, the average dollar
invested in hedge funds is managed by a large manager who regularly uses leverage. This state of
affairs is courtesy of the significant amount of concentration in the hedge fund industry. Most of the
worlds hedge fund assets are managed by a small group of mega-managers who can shop their
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Richard
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Investment Regulations
Careful What you Wish For
This the moral of the Aesop fable the Bee and Jupiter and is an appropriate caution to opponents of
short selling. There has been a shrill chorus of opposition to short selling recently, including assigning
it the blame for the recent market volatility and the plunge in credit and sharemarkets.
Following a ban on short selling by the UK's Financial Services Authority, the US Securities and
Exchange Commission has ordered "In these unusual and extraordinary circumstances, we have
concluded that, to prevent substantial disruption in the securities markets, temporarily prohibiting any
person from effecting a short sale in the publicly traded securities of certain financial firms ..."
Now the Australian Securities and Investment Commission has banned all forms of short selling for
the time being. Mr. Tony DAloisio said These measures are necessary to maintain fair and orderly
markets in these exceptional times of global crises of confidence in financial markets. Because of the
relatively small size and the structure of the Australian market, it is necessary to extend the
prohibition to all stocks. To limit the prohibition to financial stocks, as has been done in the UK, could
subject our other stocks to unwarranted attack given the unknown amount of global money which
may be looking for short sell plays.
I have sympathy with the sentiments - predatory short selling, if it is not illegal, is immoral.
However, short selling in its usual form is a key to the efficient operation of financial markets. Without
it market makers (I note that the regulators give market makers relief), fund managers and other
market participants would not be able to hedge risk.
The United States economy may have dropped down the international pecking order as it bears the
cost of widespread global military intervention, but it still remains the centre of capital markets. It is
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the most efficient place to raise capital. At least until now.
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The decision to ban short selling in certain securities opens the door for alternative markets to take
leadership. It is in the interests of listed companies to have a deep and liquid market in their
securities. It is also in the interests of investors.
While removing some participants (short sellers) may conjure (manipulate) a higher price in the short
term, it will likely cause wider spreads and reduced demand for these securities in the medium term.
Investors will prefer to trade securities in freer markets and this will drive companies to raise capital in
those markets.
Global companies that list in the United States pay United States tax, will list in other markets and pay
tax in other markets. This erosion in the US tax base will further weaken the United States' position in
the world. These companies already employ a large number of staff in other countries as production
has been outsourced to countries with cheaper sources of labour.
Australia had a remarkable opportunity here. Rather than join Karachi, London and the New York
and respond by intervening in security pricing, we could have re-affirmed the principle of free
markets.
I would expect that in response, over time, companies that value these attributes would have drifted
towards an Australian listing and bring investors with them. Imagine an Australian listing for GE,
Google and Exxon Mobil.
Or as Australia has done today we could follow the misguided response of the UK and US policy
makers and intervene by placing limits on short selling. There is currently a short selling bill before
Parliament. Lets hope this knee jerk response doesn't find itself in the black letter law.
Wishing for limits or prohibitions on short selling may appear to improve the situation in the short
term, however as Aesop warns, over time it will shrink the number of participants and kill off any
aspirations of Australia being a regional player in financial services.
The decision by ASIC to follow suit with a harsher response puts in jeopardy the fledgling Australian
hedge fund industry. Australian funds that use short sales in Australian securities to manage risk will
not able to do from Monday. Should these funds be suspended for the period of the limitation? There
is a strong argument that they should be closed and monies returned to investors as the funds cannot
be managed as specified in their respective product disclosure statements.
Any country that can be brave enough to stand firm in support of free and fair financial markets, while
regulators in current leading markets practice their voodoo economics, will have an opportunity to
develop a strong financial services industry with a global presence, bringing new jobs and prosperity.
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The recent financial crises has lead to many unique events for our team which runs
HedgeFundBlogger.com. These have included a furry of proposals on how to further regulate hedge
funds, blaming of hedge funds for speculative practices and calls for a greater understanding of
exactly what individual hedge funds are investing in. Since we run a blog, which only discusses
hedge fund related matters we have recently seen:
A member of the White House executive staff has recently joined the Hedge Fund Group (HFG)
Press Inquiries - Many interviews come down to questions on how hedge funds should be further
regulated. My common response is that if it is done in a way where technology can be
leveraged to apply the new regulatory procedures at the prime broker or hedge fund
administrator level and if funds aren't required to disclose their portfolios than it might be
readily accepted within the industry.
Hate mail and voicemails from a few individuals who believe that since I write
HedgeFundBlogger.com I must run a hedge fund and am therefore an evil person or "communist" as
one email put it.
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Fund Offering Documents
A more in depth description of the potential parts of the offering documents follows:
Private Placement Memorandum
While each law firms general PPM template is different, they all share many of the same items of
information which are included. Below is a non-exhaustive list of some of the major sections of the
PPM which you are likely to find in all offering documents.
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* Coverage
* Legends and securities laws notices
* Table of contents
* Summary
* Use of proceeds
* Investment Program
* Risk factors
* Description of the management company and managers
* Discussion of fees (Management fees, Performance fees)
* Manner of valuing the investments
* Discussion of conflicts of interest
* Discussion of brokerage
* Discussion of litigation of the investment manager
* Discussion of financial statements of the fund
* A summary of the LPA or Operating Agreement
* Discussion of service providers
* Tax disclosures
* ERISA disclosures
* Other notices (privacy notice, definition of investors qualified to invest, disclosure on the lack of
transferability, etc.)
Limited Partnership Agreement
Like the PPM, each law firm has a different way to draft the LPA. For instance, some law firms will
craft a lengthy definition section at the very beginning, other law firms will have definitions attached as
an appendix, other firms will define specific terms throughout the document. A very rough guideline of
the items which are in the LPA include:
* Cover page
* Table of contents
* Preamble
* Definitions
* Information on formation (business office, registered agent, length of fund, etc.)
* Capitalization structure (initially and on a going-forward basis)
* Manner of allocation of profits and losses (including the various tax allocation provisions)
* Manner of distributions and withdrawals
* Rights and duties of the management company
* Rights and duties of the investors
* Information on accounting, books and records
* Transfer rights
* Dissolution of the partnership; winding up
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The 10-15,000 hedge funds now being managed throughout the world use between 200-400 different hedge
fund strategies. How can you keep these all straight? The short answer is you can't, but I have started
compiling a list of hedge fund strategy definitions here below. Let me know if you are looking for something and
can't find it here.
- Richard
Emerging Markets
Emerging Markets - Investments
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Emerging market investing started to take off when in the mid-1980s when the International Finance
Corporation (IFC) set up the first mutual fund that invested solely in securities from emerging markets with a
seed capital of around $50 million. Since 2002, assets managed by emerging market hedge funds have
increased fourfold and in the first quarter of 2008, they managed approximately $110 billion, according to HFR.
Emerging market hedge funds are defined by the markets they operate in and not the strategies they follow.
Thus, these funds are quite heterogeneous and adopt a variety of strategies such as equity long/short, event
driven, global macro and fixed income arbitrage.
Emerging markets are defined quite broadly. Morgan Stanley describes an emerging market, as a country that
is in the process of building a market-based economy. Others include ideas of large productivity gains from
technological or political change. However, since the 1997-98 Asian financial crisis, the core characteristics of
many emerging nations have changed fundamentally. Once, net importers of capital, emerging markets have
now become net exporters of capital. Once heavily indebted, many emerging market governments have begun
to reduce levels of external debt. These changes have contributed to the recent success and slightly lower
volatility of many emerging market hedge funds. They have also resulted in the creation of entities such as
sovereign wealth funds and have had a strong impact on international financial markets.
Emerging Markets Interview - Emerging Markets Research
Books Related to Emerging Markets
De Brouwer, Gordon. Hedge Funds in Emerging Markets. United Kingdom: Cambridge University Press,
November, 2001.
This book tries to understand the role hedge funds played in exacerbating the Asian Financial Crisis of 1997
and 1998. While this question may not be interesting to most market players, the book also contains
several case studies of how the financial crisis unfolded. These give some insight into the strategies
hedge funds deployed in Asia during this period. However, the book is not a fun read and if you are
interested in hedge fund strategies rather than the market risk posed by hedge funds, you have to
carefully sift through the book for information.
Lhabitant, Francoise-Serge. Handbook of Hedge Funds. West Sussex: John Wiley & Sons, Ltd., 2006.
This is an excellent guide to the industry, with concise and informative descriptions on all of the major hedge
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fund strategies and primary methods to measure their risk and performance. Lhabitant also includes an
overview of the legal environment of hedge funds and their organizational structure, while ending with a
short guide to investing in them.
Emerging Market White Papers
Global Derivatives. Overview of Hedge Fund Strategies, November 2003.
Quick and dirty description of all major hedge fund strategies.
Odonnat, Ivan and Rahmouni, Imene. Do Emerging Market Economies Still Constitute a Homogenous Asset
Class? Financial Stability Review, No. 9, Banque de France, December 2006
This paper provides a good synopsis on how the current and capital accounts of emerging markets have
changed since the 1990s and describes how the composition of emerging market debt holders has
changed. It also argues that while investors show increased signs of differentiating between emerging
economies when considering portfolio allocations, disruptions may still cause a contagion effect due to
the narrowness of the emerging markets and their dependence on the decisions of non-resident
investors.
Strmqvist, Maria. Do Emerging Market Hedge Fund Mangers Lack Skills? Stockholm School of Economics,
October 2006.
Strmqvist examines hedge fund returns from 1994 to 2004 and finds that emerging market hedge funds have
underperformed non-emerging market hedge funds in terms of total and absolute return, while
providing no diversification effects. The data is slightly outdated and includes the 1997-98 financial
crisis, which significantly affects the results of the study. However, it provides an interesting statisticsbased perspective on investing emerging market hedge funds.
Strmqvist, Maria. Should You Invest in Emerging Market Hedge Funds? Stockholm School of Economics,
September 2007.
In this more recent paper, Strmqvist uses a the same data set from 1994 to 2004 to find that hedge funds
were able to generate risk-adjusted return in the latter part of the period under study. She also finds that
there is some differentiation in returns at the fund level, with successful funds continuing to generate
above-average returns. However, she also finds that this does not result in increased capital inflows.
Information Sources
Emerging Markets Monitor
The Emerging Markets Monitor covers the latest events in emerging economies across fixed income, FX,
commodity and equity asset classes, with short pieces that include analysis, forecasts and trade ideas.
Financial Crisis in Emerging Markets, NBER
Run by the National Bureau of Economic Research, this project examines the causes of currency crises in
emerging market economies. As such, it contains a large selection of white papers that may be helpful
to people interested in learning more about the financial markets in emerging economies.
HFR Emerging Markets Industry Report
The Institute of International Finance
Created in 1983, in response to the international debt crisis, the Institute of International Finance Inc is a global
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association of financial institutions. It collects a variety of data related to emerging markets and also generates
independent research on the subject. Subscription is available only through registered member institutions and
is not open to individuals.
The Journal of Emerging Market Finance, Sage Publications
This journal contains scholarly articles that cover practical and theoretical issues related to emerging markets.
Networking Events
Terrapin hosts an annual emerging market hedge fund conference
Tracking Tools
Credit Suisse Tremont Hedge Fund Index
CS/Tremont tracks provides registered users with historical data on the performance of variety of hedge fund
strategies.
Short List of Emerging Market Hedge Funds
Axiom Investment Management (Hong Kong) - emerging markets hedge fund focused on Asia.
Farallon Capital Management
Horseman Capital Management
Marathon Asset Management
Moon Capital Management
Moore Capital Management - Moore Emerging Markets
Sloane Robinson - SR Global Fund Emerging Markets, SR Vista Emerging Markets
Thames River Capital (United Kingdom)
Tudor Investment
Guest Post by Sharini Kulasinghe
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Lhabitant, Francoise-Serge. Handbook of Hedge Funds. West Sussex: John Wiley & Sons, Ltd., 2006.
This is an excellent guide to the industry, with concise and informative descriptions on all of the major hedge
fund strategies and primary methods to measure their risk and performance. Lhabitant also includes an
overview of the legal environment of hedge funds and their organizational structure, while ending with a short
guide to investing in them. In his description of equity long/short strategies, Lhabitant provides a detailed
description of the mechanics of constructing a long/short position and portfolio.
Equity long/short white papers and articles
Fung, William and David A. Hsieh. Extracting Portable Alphas From Equity Long-Short Hedge Funds. Journal
of Investment Management, Vol. 2, No. 4, Fourth Quarter 2004.
Fund and Hsieh use data from three different sources to show empirically that between 1996 and 2002, Equity
long/short hedge funds have significant alpha to both conventional and alternative risk factors.
Fung, William and David A. Hsieh. The Risk in Hedge Fund Strategies: Theory and Evidence from Long/Short
Equity Hedge Funds.
In this paper, Fund and Hsieh seek to answer three basic questions: is the source of return in long/short equity
hedge funds different from long-only mutual funds; are long/short equity hedge funds exposed to similar risk
factors as long-only mutual funds; and do long/short equity hedge funds provide excess return beyond
compensation for systemic risk? They find that. . . This paper also provides an overview of the mechanics of
constructing and modeling the performance of an equity long/short portfolio.
Freed, Steven F. An Overview of Long-Short Equity Investing. November 29, 1999
In this paper, Steven Freed briefly outlines the basics of constructing an equity long/short portfolio. He also
describes three sources of return in equity long/short investing and the effect of market movements on them.
McFall Lamm Jr, R. The Role of Long/Short Equity Hedge Funds in Investment Portfolios, DB Absolute
Return Strategies.
This paper examines the historical returns of long/short equity hedge funds and argues that these funds have
outperformed traditional long-only equity exposure and do so with lower risk. The paper also includes a good
description of the equity long/short strategy.
Schmitz, John J. An Introduction to Market Neutral Equity Strategies, SciVest Capital Management Inc.
This powerpoint presentation provides a good description of the fundamentals behind putting an equity
long/short strategy together. Also looks at the advantages of the strategy and risk management techniques that
could be used in when putting together an equity long/short strategy.
The Case For Long/Short Equity as a Tool in Traditional Asset Class Construction argues that the long/short
equity approach should be thought of as a specific asset class when building a portfolio because it adds value
to a long-only and tracking error-constrained strategies.
Tracking
Credit Suisse Tremont Hedge Fund Index
CS/Tremont tracks provides registered users with historical data on the performance of variety of hedge fund
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strategies.
More Hedge Fund Guides
Hedge Fund Terms
Hedge Fund Marketing
0
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Yield curve arbitrage strategies are designed to profit from shifts in the steepness of or kinks in the US
Treasury yield curve by taking long and short positions on various maturities. This could take the form of a
butterfly trade, where, for example the investor goes long five-year bonds and shorts two and ten-year bonds.
Or, it may take the form of a spread trade, where, the investor goes short the front end of the curve and long
the back end of the curve. The strategy requires the investor to identify some points along the yield curve that
are rich or cheap.
In their simplest form volatility arbitrage strategies profit from the well-known tendency of implied volatilities to
exceed subsequent realized volatilities. This is done by selling options of fixed income instruments and then
delta-hedging the exposure to the underlying asset. However, many hedge funds implement vastly more
complex volatility arbitrage strategies, some of which are described in our bibliography.
Capital structure arbitrage strategies exploit the lack of co-ordination between various claims on a company,
like its debt and stock, for example. The strategy involves buying one instrument of a companys capital
structure and hedging that exposure by selling another. For example, a trader, who believes that the debt of a
company is overpriced relative to its equity, would short the companys debt and buy its stock. Capital structure
arbitrage trades may also trade junior vs. senior debt or even convertible bonds vs. stock.
Books
Lhabitant, Francoise-Serge. Handbook of Hedge Funds. West Sussex: John Wiley & Sons, Ltd., 2006.This is
an excellent guide to the industry, with concise and informative descriptions on all of the major hedge fund
strategies and primary methods to measure their risk and performance. Lhabitant also includes an overview of
the legal environment of hedge funds and their organizational structure as well as a short guide to investing in
them.
Lowenstein, Roger. When Genius Failed: The Rise and Fall of Long-Term Capital Management, Random
House, October 9, 2001
Lowenstein provides an inside look at the story of some of the most famous fixed income arbitrageurs.
White Papers
Yield Curve Arbitrage
Leung, Seng Yuen. Yield Curve Analysis and Fixed Income Arbitrage. HKUST, February 23rd, 2006.
Give a good overview of key instruments and principles in the fixed income space.
Volatility Arbitrage
Duarte, Jefferson, Fancis A. Longstaff and Fan Yu, Risk and Return in Fixed Income Arbitrage: Nickels in
Front of a Steamroller? March 2006
This paper examines the risk and return characteristics of major fixed income arbitrage strategies and finds
that strategies that require the most intellectual capital to implement, produce significant alpha, contradicting
the view that many strategies in this space are equivalent to picking nickels in front of a steamroller. In the
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process, this paper provides a detailed overview of all major fixed income arbitrage strategies.
Habib, Rami, Volatility Arbitrage A New Hedge Fund Strategy GTNews, 29th October 2003
Dr. Habib describes the mechanics of common volatility arbitrage strategies
Higgins, Tom, The Long and Short of Volatility, Alternative Investor Conference, 2003
Executive VP of Maple Financial Group, Tom Higgins, details some of the risks of volatility arbitrage strategies.
Incisive Media, Volatility Arbitrage: The Non-Correlated Alternative. Hedge Funds Review, July 2006.
This paper is a detailed description of volatility arbitrage strategies as well as an overview of the main hedge
funds who work in this area.
Petherick, Martin, Volatility Arbitrage from the Short Side, Hedge Fund World, October 2003 This article
describes popular volatility arbitrage trades as well as more complex ones.
Capital Structure Arbitrage
Currie, Antony and Jennifer Morris, And now for capital structure arbitrage, Euromoney, December 2002
Currie and Morris provide a very clear explanation of a market in which debt vs. equity capital structure
arbitrage trades would be highly profitable. Writing at the time when capital structure arbitrage was just gaining
ground as a trading strategy, they also provide some of the historic context behind the strategys development.
Nelken, Izzy, Capital Structure Arbitrage, Super Computer Consulting Inc
This powerpoint presentation describes major capital structure arbitrage strategies.
Yu, Fan, How Profitable is Capital Structure Arbitrage? University of California, Irvine, June 3, 2005
Yu examines the risk return characteristics of capital structure arbitrage strategies using the stock price and
CDS spread of 261 companies. He finds that while the excess returns of this strategy are not correlated with
any other major portfolio strategy, its excess returns are similar to all other major fixed income arbitrage
strategies.
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130/30 hedge funds are one of the fast growing strategies within the hedge fund industry. 130/30 hedge funds
are like normal 100% long managers except they are allowed to short 30% of the value of the portfolio and
then use those shorting proceeds to go an additional 30% long in the portfolio. The end result is an overall
portfolio position of 130% long and 30% short.
The strategy has just recently been gaining more attention and if you are an investor, consultant or on the
board of an investment group I thought you might be interested in reading more on 130/30 funds.
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Global Macro is a relatively volatile hedge fund strategy that attempts to profit from shifts in the market due to
economic, political, or government related events. Many times these hedge funds use leverage and produce
returns that are not highly correlated with the public equity markets. Hedge fund managers use indexes,
equities, ETFs, bonds, and other asset types while using this strategy. Managers of global macro hedge funds
try to anticipate changes in global macroeconomic trends and make bets to profit from them. They are able to
allocate capital across asset classes, sectors and regions. It is perhaps the widest mandate of all hedge fund
strategies as managers can take a position in any market and instrument. It is therefore no surprise that
managers of global macro hedge funds have very different approaches and trading styles. Some managers will
design trades based on their subjective opinion of market conditions (called discretionary approach), while
others will use quantitative or pre-defined rules to do so (called systematic approach). And others will use a
combination of both methods. However, all global macro managers are linked by the international scope of
their strategies, the use of leverage and a primary focus on structural macroeconomic imbalances and trends.
Global macro trading strategies primarily fall under two categories: directional and relative value. In a
directional trade, a manager will bet on discrete price movements, such as long US dollar, short gold or long
Indian government bonds. On the other hand, relative value trades are structured by pairing a long and short
position in similar assets to take advantage of a relative mis-pricing. For example, a manager can go long
Indonesian government bonds and short Philippine government bonds.One of the most famous global macro
trades is a relative value trade designed by George Soros, who bet that the UK would be forced out of the
European Exchange Rate Mechanism (ERM) in 1992. So, he borrowed the sterling pound and converted it into
a mixture of Deutschmarks and French francs. On September 16th 1992, known as Black Wednesday, Soros
bet paid off when the pound fell below its minimum level in the ERM. It is this trade that earned Soros the title
of the man who broke the Bank of England.Soros and several other star global macro managers such as
Julian Robertson, Lewis Bacon and Bruce Kover have generated outsized returns. In fact, on average, the
performance of global macro funds has been relatively strong, as they have produced high absolute returns,
outperforming traditional asset classes.
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The global macro approach to investing is one of the most popular hedge fund strategies seen today. Global
macro fund managers try to make leveraged bets on aspects of the global macro economy. For example, fund
managers could place these leveraged bets on currencies, commodities, interest rates, or even equities. As
most investors global macro managers would like to minimize downside risk while still offering exceptional
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returns. Global macro hedge fund managers often have the liberty of having the choice of using any
investment instrument in almost any market to produce their returns.
Global macro trades could either be directional or of relative value. In directional trades managers make bets
on isolated price movements. For instance, the manager could short the Dollar, long on the Euro, or short on
Brazilian Bonds. On the other hand, relative value trades are used to take advantage of assets which were not
properly priced. Managers will usually couple assets on both the long and short side to expose these mispricings. A usual bet could be a long on US equities versus a short on emerging chinese equities.
The global macro strategy could be executed in any number of markets and because of this fund managers
are not as constrained as other fund managers who could have most of their assets invested in one market.
Because of this, global macro funds have been able to sometimes avoid the bear markets in one country and
take advantage of bull markets in another.
Sustainable Investing
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range of assets or investment strategies to take advantage of those environments. Events can include some
things that global macro funds might respond to but they can also include IPOs, mergers, write down
announcements, or backdating scandal announcements. They try to ride the short term momentum either up or
down created by events that are priced into the marketplace.
Want something more meaty? Here is a Event Driven Hedge Fund Strategy White Paper
Read dozens of more articles like this within my Hedge Fund Strategy Guide.
-
Richard
Green and socially responsible investing has been growing steady and many
predict the total market for green and socially responsible mandates just on the
institutional level will be 3-4x where it is at right now. Many green hedge funds
have been seeing strong returns and it is an area that is not yet over-crowded
or dominated by large players. New York used to be the sole center for green
hedge fund management but Europe, specifcally London is now gaining ground
in this area of the industry.
Green hedge funds can range in strategies from screen for equities that only invest in "green businesses" to
carbon trading, renewable energy credit trading, ethanol trading and emissions trading. Similar to many other
hedge fund strategies green hedge funds are playing risk arbitrage and variations of long-term value and short
term momentum growth plays to earn returns for their investors.
See what other hedge fund strategies made the top 5 hedge fund strategies list.
-
Want to read more on green hedge funds? Here is a good article on the subject.
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more than $60 million, found the average respondent spent nearly $4 million on fine art in 2005. So, article
questions if art market price will hold up during this time of hedge fund turmoil.
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The hedge fund industry in Africa is relatively small, there are only a few
dozen funds located on the whole continent. One of my first jobs in the
hedge fund industry was actually working on finding institutional investors
for a South African based hedge fund of fund.
Nowadays institutions, sophisticated family offices and local high net worth
individuals are taking the lead on investing in African based hedge funds.
Many are looking to Africa more often as PEs in Asia expand and rumors
of a "China bubble" have emerged. Many investors have settled on
investing in African based hedge fund of funds as the nature of it usually
provides a less volatile exposure to these frontier economies.
130/30
Hedge Fund Growth
Financial News reports that the amount institutional assets allocated to 130/30 hedge fund strategies could
grow 7 fold over the next 3 years to over $350 Billion. Another survey by Merill Lynch also took a stab at
130/30 growth figures and guessed that over $1 Trillion of both international and domestic institutional and
retail assets will flow into these types of funds over the next 5 years. Finally, a third report from the well
-respected TABB Group predicts that 130/30 strategies will have up to $2 Trillion in international assets within
two years. A high percentage of these assets are expected to come from US pension plans, half of which are
expected to invest in these more heavily in the years to come.Dozens of small shops have created 130/30
strategies alongside large players such as UBS, Bear Stearns and ING. Is it too late to start a 130/30 hedge
fund and take advantage of this growth? Experience would tell me no. There are lessons to be learned about
how current 130/30 portfolio management teams are being constructed and how they have positioned
themselves in the market.
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Read dozens of more articles like this within my Hedge Fund Strategy Guide.
There are some hedge fund strategies with over $50 or $100 billion dollars already being put to work while
others are only employed by a small handful of firms. In 5-7 years there will be some new hedge fund
strategies that will take hold and propel small emerging hedge fund managers into the world of $1B + hedge
funds.
Here is a list of what I see as the top 5 hedge fund strategies that will explode in popularity over the next 5-7
years:
1. 130/30
2.Carbon Credit Trading
3. Socially Responsible & Green Hedge Funds
4. Litigation Funding
5.Intellectual Property (Patents, Domains and Licensing Rights)
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Litigation Funding
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Short Selling
Short Selling & Hedge Funds
Last week I got a Hedge Fund Group related email from a head of a short selling focused research firm. I have
exchanged several emails with him regarding short selling research and realized I had not written much about
short selling hedge fund strategies or trends here in my blog.
The first hedge fund created was labeled so because each long position was hedged with a short position, this
is often called a "pair trade" or "matched pair." Today in the hedge fund industry many hedge funds still hedge
each position in some manner, but many other hedge funds do not short sell securities or hedge all of their
positions.
This is due to several factors, two of the most prominent being the:
1.Migration of some long-only equity managers into hedge fund vehicles, where their skill-set in building
portfolios of long positions
2.Expansion of the definition of a "hedge fund." Now some real estate and private equity like investment
groups are labeled hedge funds less because of hedging and more because of their fee/payout
structure.
A portion of the managers who are using short selling within their portfolios are still moving up the learning
curve on profitably taking these positions. This is because many came from a long only world and usually try
reverse engineering their long only strategy to come up with shorting ideas, some more successfully than
others. For example being in early on a great long idea can prove very profitable within a long only portfolio
where moving in too early on a great short idea can lead to great losses, the timing is more critical. Some
long/short managers I have seen are 90-95 percent net long and don't have very many meaningful short
positions built into their portfolios. Some of this may be by design but a portion of it is simply due to the
experience and skill-set of the portfolio management team at the hedge fund.
Another less common short selling strategy is to find companies beginning to or likely to be involved in
fraudulent activities. This is where a hedge fund manager will seek out publicly traded companies that are
trying to cover something up, prevent poor press exposure or delay the announcement of a negative news
event.
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Emerging markets hedge funds drew in over $9B in new assets last year. This is a great deal more than was
investing in this area 5 years ago when only $3.3B was put into these types of hedge funds. One reason why
this strategy has been receiving so much attention is while the average hedge fund had performance of around
11% last year emerging market hedge funds returned close to 25%.HFR notes that these high performance
numbers were fueled by eye-popping returns at funds like the GLG Emerging Markets Fund which surged
50.5%, the Kazimir Russia Growth fund which gained 48.77%, and the Moore Emerging Market Fund's 45.62%
increase. "The success of emerging markets hedge fundscombined with recent activity of sovereign wealth
fundsis beginning to have a noticeable impact on global capital markets," Kenneth Heinz, HFR's president,
said in a statement.
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Risk arbitrage hedge fund strategies usually involve purchasing stocks of companies that are likely takeover
targets, while assuming short positions in the would-be acquiring companies. Risk arbitrage hedge fund
managers can employ an event-driven investment strategy or merger arbitrage investment strategy, seeking
situations such as hostile takeovers, mergers and leveraged buyouts. Such funds typically experience
moderate amounts of volatility. Technically arbitrage is riskless but this is not realistic, the amount of risk taken
on within each arbitrage situation is decided by the portfolio management team and traders.
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Arbitrage is a investment approach that aims at exploiting price differentials that exist as a result of market
inefficiencies. Arbitrage plays typically involve purchasing a security in one market, while selling an instrument
with similar performance characteristics in another market -- earning returns that far exceed the risk incurred.
Arbitrage is a pretty broad term that is tossed around often and technically could describe a wide swath of
strategies in the hedge fund industry. You may have heard of convertible arbitrage, index arbitrage, dividend
arbitrage or bond arbitrage before. Convertible arbitrage is one of the most popular forms; it is where a hedge
fund manager or trader purchases convertible securities, which are usually bonds. They then short a usually
preset portion of the equity risk by shorting the underlying equity security. Leverage is often applied within
these types of arbitrage portfolios.
Term Source: HedgeCo
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ADDITIONAL RESOURCES:
Additional article: "We've applied a model that has worked in a lot of other asset classes and we've applied it to
art." Over the past 10 years, returns in the art market have outpaced gains made by the S&P 500, according
to the Mei Moses art index. Using this index, art returned 18.27% last year, while the S&P 500 gained
15.79%. Five-year returns also favor art investors, but go back 25 years and the S&P 500 comes out on top.
130/30 Funds Article - What are They?
A Review of 130/30 Hedge Funds
PowerPoint Analysis of 130/30 by Watson Wyatt
Positives an Negatives of investing in a fund using the 130/30 Strategy
PWC Report on Hedge Fund Growth
54 Page Risk Arbitrage White Paper
Arbitrage PowerPoint Presentation
Older White Paper on Risk Arbitrage in Takeovers
Harvard Business Risk Arbitrage Research Piece
Limited Risk Arbitrage Portfolio Management Approach White Paper
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Due to the number of inquiries I am currently getting from hedge fund startups and
emerging hedge fund managers I will releasing a number of related interviews,
example documents, marketing tips and case studies which hedge funds with less
than $200M/AUM may be interested in using for their businesses. These resources
will be displayed here after being published:
1. Hedge Fund Marketing Tools
2. Hedge Fund Seeding
3. Setup a Hedge Fund
4. Raising Capital With Tenacity
5. Hedge Fund Public Relations
6. Hedge Fund Seed Capital
7. Starting a Hedge Fund | A Sample Timeline
8. How to Start A Hedge Fund
9. Email Newsletter Creation Tool
10. Hedge Fund Ethics
11. Seed Capital Sources
12. Financial Advisor Marketing
13. Marketing to Institutional Investors
14. Third Party Marketing
15. Types of Hedge Fund Investors
16. The Schism | Marketing Hedge Fund Managers
17. More coming soon...
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I have created this page to list a collection of online hedge fund marketing tools
available to professionals within the hedge fund marketing space. If you have a favorite tool or run a firm which
offers a tool for third party marketers please email me at Richard@HedgeFundGroup.org to discuss having it
posted here.
Fund of Hedge Fund Database Fund of Hedge Funds Database which profiles 2,585 funds and is the
most comprehensive database of its kind
Fund of Hedge Fund Directory: Directory of Funds of Hedge Funds
profiles 1,032 carefully selected funds of hedge funds and funds of CTAs
Email Newsletter Creation Tool: Aweber is the #1 provider of email newsletter creation and
management services. Creating an email newsletter keeps you in front of your prospects and loyal
customers. Aweber offers a suite of low cost professional email newsletter templates and their how-to
guides, quick online support and email tips make them a favorite of thousands of firms. Click here now
to see what Aweber offers.
Hedge Fund Database: Thorough database which c ontains comprehensive information on 3,169 single
manager hedge funds.
Hedge Fund Directory: A less expensive and lighter collection of single hedge fund manager contact
details.
CTA Database A source for managed futures data for the past 20 years and contains comprehensive data
on 864 CTA programs.
CTA Directory A less expensive lighter version of the database above
Hedge Fund Asset Flow Reports Order reports to dig into where asset flows are coming and going
within the hedge fund industry. Monthly reports available.
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Below is an article being added to our Hedge Fund Startup Tools page. This
piece is from Tim Sykes, a colorful wall street personality with a large online
following and experience in running a small hedge fund and then writing a
book on the experience, which I have reviewed here. I do not agree with
everything noted below but I believe it is valuable as it is rare to read articles
by those who have managed a hedge fund about the struggles of running a
small hedge fund.
______________________
I brought an outline of my strategy and performance to a friend of a family
friend, who supposedly had access to many hedge fund and rich clients - he
was impressed, but wanted to know the details of my strategy but wouldnt
give me any assurances he simply wouldn't use it for himself. In addition, he
wanted my returns audited and only then would he consider helping me raise
capital in exchange for a "slight" fee. I couldnt trust this guy and I didn't
want to tell him my secrets so I passed. This encounter made me realize that audited returns would be necessary
because my success was rather unbelievable. I figured this expense would be crucial to my fund raising, so I
found a local accountant familiar with stock trading and spent a college semesters tuition to have my tens of
thousands of trades audited.
After a few weeks of patiently reviewing all my trades with this accountant, the audit was finally finished and
the numbers looked good. In fact, the numbers looked too good. Yes, my ridiculous returns might be a problem.
Lesson #1:
If you consistently beat the market, you will face endless questions about whether or not you are a fraud.
No matter, I decided to form my own fund and take my chances raising capital. Since I was still in college and
had focused solely on trading for the past few years, I had very few business connections and most of my
friends and family were not wealthy enough to invest considering the all knowing industry regulations stated
my investors would need a net worth of $1 million or more to be worthy of such a risky investment. Only my
continued performance could attract new money, but, being my cocky self, that was the one part of the equation
I wasnt worried about.
Mutual funds could accept less wealthy investors, but had severe investment limitations. No, I did not want to
start a mutual fund because most of them had to be invested at all times and they couldnt even short sell!
Hedge funds were considered the hot new investment vehicle, so I researched the industry nonstop for a few
weeks and liked what I saw. I discovered the startup costs to be surprisingly modest and I loved the legal
flexibility that would basically allow me to invest in any manner I saw fit.
Before the emergence of discount hedge fund startup shops over the past few years, I found the template for
offering documents and lawyer fees could exceed $75,000. Since then, hedge fund boutiques had appeared,
offering their administrative and startup services so startup costs did not exceed $10,000. That was some
reduction!
I chose the second least expensive boutique I could find (probably something ingrained in me ever since my dad
advised to always purchase the second cheapest bottle of wine from a restaurants wine list). Still, I was
surprised there were so many forms to fill out and small fees to be paid, but I went along with whatever my
fund administrator said because he had set up dozens of firms over the past few years. This was the real world
so it would take patience, something never required of me in the trading world.
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Lesson #2:
Everything takes much more time in the real business world compared to the trading world.
The ink on my letters of incorporation was barely dry when it hit me. I had been distracted by my quest for
finding outside investors and creating all my companies that my trading had suffered as a result. Successful
trading is all about focus, discipline and concentration and these lessons had been consumed by my ambition
and greed. I had taken some rather stupid losses and now, with my fund inception just days away, I would no
longer have that magic whole number in front of the millions of dollar under management. No, I would have to
put a dreaded decimal point and some other numbers before the word million, hurting my credibility from the
start.
Lesson #3:
Focus on trading first; never schedule investor meetings during market hours.
Meanwhile my fund administrator convinced me to switch brokers because my trusty online discount
brokerages were simply not used in the hedge fund world. I quickly agreed, but I was in for a rather big
surprise. This newly recommended brokerage did not have any electronic trading platform (I was told it would
be ready within weeks) and the traders executing my orders gave me some of the worst executions I had ever
seen. I called to complain, but they brushed me off. They placated me by saying their new online software was
only days away from completion. Almost twenty months later, the software is still almost ready. I switched to
yet another recommended brokerage that had online trading software and I became friends with one trader who
expertly executed my larger orders.
Still, the commissions I paid were much higher than my previous setup so I asked for and received several price
reductions, based on how much trading I did. It quickly became clear which broker I wanted to stay with when
the broker without electronic access incredibly upped their commission on a trade without telling me. When I
called to complain, the broker told me he knew I was paying more at the other broker and therefore he was
entitled to the same rate. He was mistaken on top of the fact that he just had taken matters into his own hands
without consulting me. The difference in price on that one trade was only a few dollars, but I lost my temper
based on the principle of the situation.
Luckily, I had started chatting regularly with a popular industry commentator and he referred to me another
broker that was perfect for short selling. This new brokers online software, cost, and short-selling list blew
away the competition so, I dropped my other brokers and focused on this new guy.
Lesson #4:
Do not feel bad about changing brokers if they are ripping you and your clients off. They are not girlfriends;
there is always somebody cheaper and better out there.
The CEO of the brokerage I dropped called me to see what they had done wrong and ask why I had closed my
account. I could not understand why it was so important my small fund stayed with their firm that supposedly
had billions of dollars in accounts. My commissions with them barely touched into the thousands. As ridiculous
as this conversation was, I respected this man for his dedication to providing customer service. Too bad their
brokerage services werent up to par.
Every fund manager should price as many prime brokers as possible that fit the funds strategy. There are many
brokers who may trade for themselves, but mainly exist and make money by taking their share out of our online
trading commissions. They make their money from trading commissionsthats the bottom line. There should
be no reason to have to pay an individual representative of a major brokerage when we simply use their online
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Hedge Fund Seed Capital Source #1: High Net Worth individuals (accredited investors) who are familiar
with your trading skills, past portfolio management experience, or clearly understand your competitive
advantage in the marketplace.
Hedge Fund Seed Capital Source #2: Family & Friends who are accredited investors.
Hedge Fund Seed Capital Source #3: Private Equity Firms. Many private equity funds have jumped into
the space of seeding hedge funds and many will in turn work on raising assets for your fund once it will
benefit both your fund and themselves.
Hedge Fund Seed Capital Source #3: Hedge Funds. Some hedge funds have huge amounts of free cash
flow and are looking for ways to re-invest it within strategies they understand and do not directly
compete with products that they plan to create on their own.
Hedge Fund Seed Capital Source #4: Associated banks or investment networks will often seed new
hedge fund products they are launching with significant levels of capital.
Hedge Fund Seed Capital-Related Trends
If you read hedge fund news every day you will notice several trends emerging in the area of hedge fund seed
capital. The most prominent is as mentioned above many private equity firms are agressively placin seed
capital with emerging hedge fund managers. The second is that most of hedge fund seed capital is coming from
established hedge funds and private equity groups or investment banks. I believe that the banks are succeeding
in convincing a small fund to give up 20-40% of equity in return for the funds because they also come with
marketing and distribution resources that will make the total pie of available fees much higher. Many hedge
fund managers have become millionaires after accepting outside seed money or an equity investment.
Interested in hedge fund marketing? Read dozens of more hedge fund marketing & sales articles along with
details on third party marketing within the Hedge Fund Marketing Guide.
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Unlike a mutual fund, a hedge fund is not registered as an investment company under the Investment Company
Act and interest in the fund is not sold in a registered public offering. Hedge funds can trade in a wider range of
assets than a mutual fund. Portfolios of hedge funds may include fixed income securities, currencies, exchange
traded futures, over-the-counter derivatives, futures contracts, commodity options and other non-securities
investments.
As the name indicates, hedge funds initially specialized in hedging and arbitrage strategies. When Alfred
Winslow Jones established the first hedge fund as a private partnership in 1949, that fund invested in equities
and used leverage and short selling to hedge the portfolios exposure to movements of the corporate equity
markets. Although hedge funds today often employ far more elaborate hedging strategies, it is also true that
some hedge funds simply use traditional, long-only equity strategies.
Hedge funds are also well known for their fee structure, which compensates the adviser based upon a
percentage of the funds capital gains and capital appreciation. Advisors at hedge funds often invest significant
amounts of their own money into the funds that they manage.
Although they still represent a relatively small portion of the U.S. financial markets, hedge funds are a rapidly
growing investment vehicle. The growth is fueled primarily by the increased interest of institutional investors
such as pension plans, endowments, and foundations seeking to diversify their portfolios with investments in
vehicles that feature absolute return strategies flexible investment strategies that hedge fund advisers use to
pursue positive returns in both declining and rising securities markets, while generally attempting to protect
investment principal. In addition, funds of hedge funds, which invest substantially all of their assets in other
hedge funds, have also fueled this growth. This growth has not escaped the notice of the SEC, which has
expressed concerns about the potential impact of hedge funds on the securities markets.
Legal Documents to Set Up a Hedge Fund
To start a hedge fund, documents are prepared to establish the fund and the management company as legal
entities. The subscription agreement and the operating agreements for the fund and the management company
also must be drawn up. One document that is of particular importance is the private placement memorandum
(PPM), since potential investors generally rely heavily on the information that the PPM provides.
The PPM is an extensive document individually created for each hedge fund. Although there are no specific
disclosure requirements for the PPM (provided the offering is made solely to accredited investors), basic
information about the hedge funds adviser and the hedge fund itself typically, in fact is disclosed. The
information provided is general in nature, varying from adviser to adviser, and it normally discusses in broad
terms the funds investment strategies and practices. For example, disclosures generally include the fact that the
hedge funds adviser may invest fund assets in illiquid, difficult to-value securities, and that the adviser reserves
the discretion to value such securities as it believes appropriate under the circumstances. Also often included is
a disclosure about the adviser having discretion to invest fund assets outside the stated strategies.
The PPM usually provides information about the qualifications and procedures for a prospective investor to
become a limited partner. It also provides information on fund operations, such as fund expenses, allocations of
gains and losses, and tax aspects of investing in the fund. Disclosure of lock-up periods, redemption rights and
procedures, fund service providers, potential conflicts of interests to investors, conflicts of interest due to fund
valuation procedures, side-by-side management of multiple accounts, and allocation of certain investment
opportunities among clients may be discussed briefly or in greater detail, depending on the fund. The PPM also
may include disclosures concerning soft dollar arrangements, redirection of business to brokerages that
introduce investors to the fund, and further disclosure of how soft dollars are used. Copies of financial
statements may be provided with the PPM.
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The PPM reflects market practice and the expectations of sophisticated investors who typically invest in hedge
funds. It also reflects the realization of the sponsors and their attorneys that the exemptions from the registration
and prospectus delivery provisions of Section 5 of the Securities Act, available under Section 4(2) of the
Securities Act and Rule 506 thereunder, do not extend to the antifraud provisions of the federal securities laws.
The disclosures furnished to investors therefore serve as protection to the principals against liability under the
antifraud provisions.
Accredited Investors and Due Diligence
Offerings made to accredited investors exclusively are exempt from disclosure requirements under Rule 506.
If the offering is made to accredited investors only, issuers are not required to provide any specific information
to prospective investors. The term accredited investors is defined to include:
Individuals who have a net worth, or joint net worth with their spouse, above $1,000,000, or who have income
above $200,000 in the last two years (or joint income with their spouse above $300,000) and a reasonable
expectation of reaching the same income level in the year of investment, or who are directors, officers, or
general partners of the hedge fund or its general partner; and
Certain institutional investors, including banks, savings and loan associations, registered brokers, dealers and
investment companies, licensed small business investment companies, corporations, partnerships, limited
liability companies, and business trusts with more than $5,000,000 in assets; and
Many, if not most, employee benefit plans and trusts with more than $5,000,000 in assets.
Of course, the hedge fund may wish to allow non-accredited investors into the fund, in which case it will not be
exempt from disclosure requirements. Moreover, even if the fund will only open to accredited investors, those
investors will want information about the fund before buying into it. Indeed, prospective investors will often
subject the fund and its managers to an extensive process of due diligence. Investors often spend significant
resources, frequently hiring a consultant or a private investigation firm, to discover or verify information about
the background and reputation of a hedge fund adviser. Prospective investors may gain access to brokers,
administrators, and other service providers during the initial due diligence process, verifying most information
contained in the PPM (including the advisers history). Since the PPM usually is the starting point for those
conducting due diligence, it remains a crucial document, even for offerings exclusively for accredited
investors.
Do I need to register?
In some cases, subject to a state-by-state determination, a fund manager may be required to sign up with his
state as an investment adviser if he has less than $25 million under management. For amounts under
management between $25 million and under $30 million, the fund manager may choose the regulator either
the state or the SEC. If the fund manager has more than $30 million under management, he would need to
register with the SEC as an investment adviser.
When the situation is complicated with investors from multiple states, usually a notice filing is required. It is
impossible to make a blanket statement pertaining to registration requirements and exemption options, except to
say that they vary by state and fund structure.
A commodities pool operator (CPO) falls under another set of registration requirements. He must take the Series
3 exam, although it is not required that he be sponsored to do so. Additionally, the CPO and his related fund
may end up under regulation from the Commodity Futures Trading Commission (CFTC) and its selfregulatory
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The Series 7 has no value to either a Registered Investment Adviser (RIA) or CPO. If someone has a current
Series 7 (they have been registered within the past two years with a broker/dealer), he can choose to take the
Series 66 instead of the Series 65. The Series 7 plus the Series 66 is always (in all states) equivalent to the
Series 65. After two years of not being with a broker/dealer, all prior registrations (such as a Series 7) expire
and are no longer valid. Similarly, if someone previously passed the Series 65, but did not register it with either
a broker/dealer or an investment advisory firm, the exam has expired and will need to be taken again.
Alternatives to Full Hedge Fund Development
Given the registration requirements and the extent of disclosure necessary, it is no wonder that many fledgling
hedge fund managers abandon their business plan due to potentially onerous startup requirements. There is,
however, an alternative for hedge fund startups that do not have yet the track record necessary to attract new
investors.
An Incubator can be created by breaking down the hedge fund development process into two stages and
isolating the first. The first stage sets up the fund and management company entities, as well as pertinent
operating agreements and resolutions. This is enough to allow the hedge fund to begin trading, usually with the
managers own funds. By trading under this structure, the manager can develop a track record, which can be
marketed legally to potential investors in the offering documents. Then, in the second stage, the PPM is
developed with the performance information included. The Incubator method affords the opportunity for those
with a skill for trading (often in their personal accounts) to break down the hedge fund development process
into a manageable undertaking.
One of the caveats of the Incubator option is that the fund manager cannot be compensated for his trading
activity. Thus, the acceptance of outside funds, although permitted, exposes the fund manager to fiduciary
obligations for which he cannot receive any compensation. If outside funds are to be accepted, careful planning
is required to avoid potential legal issues.
Offshore
Though often assumed, offshore funds are not established for the purpose of avoiding U.S. taxation. This is the
wrong reason to consider an offshore fund. In short, setting up an offshore fund is not a tax minimization
strategy, as U.S. citizens and resident aliens (e.g., green card holders) are taxable on their worldwide income.
The U.S. tax results depend on the nationality and domicile of the fund manager and his or her management
company.
The word offshore has a certain mystique to many. Offshore hedge funds are investment vehicles organized in
offshore financial centers (OFC). OFCs are countries that cater to the establishment and administration of
mutual and hedge funds (funds). Offshore funds offer securities primarily to non-U.S. investors and to U.S.
tax-exempt investors (e.g. retirement plans, pension plans, universities, hospitals, etc.). U.S. money managers
who have significant potential investors outside the United States and tax exempt investors typically create
offshore funds. In many OFCs, the low costs of setting up a company, along with a kind tax environment, makes
them attractive to establishing funds. Offshore funds generally attract the investment of U.S. tax-exempt
entities, such as pension funds, charitable trusts, foundations, and endowments, as well as non-U.S. residents.
U.S. tax-exempt investors favor investments in offshore hedge funds because they may be subject to taxation if
they invest in domestic limited partnership hedge funds. Offshore hedge funds may be organized by foreign
financial institutions or by U.S. financial institutions or their affiliates. Sales of interests in the United States in
offshore hedge funds are subject to the registration and antifraud provisions of the federal securities laws.
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British Virgin Islands: More than 2,000 mutual funds worth an estimated $55 billion currently are incorporated
in the BVI. So too are many hedge funds. In all, 11 banks operate on the BVI, catering mainly to high net-worth
wealth and trust management. The government launched new laws to placate the international communitys
concerns over a lack of financial regulation.
Cayman Islands: The Cayman Islands is one of the worlds lowest tax domiciles with no personal or corporate
taxes. Registering in the Cayman Islands does not involve much due diligence by the Cayman Islands Monetary
Authority during the incorporation process, but is not necessarily cheaper or faster overall. Cayman does not
require monthly reports or prior consent to change service providers, but before a fund can commence trading, it
has to be registered with CIMA under the Mutual Funds Law (subject to some exceptions). This means
identifying all service providers to the fund and providing certain information about the fund and the offering of
its securities, and CIMA has to be notified of any subsequent changes. However, currently the Cayman Islands
does not require a fund to file regular reports with CIMA.
The Bahamas: The Bahamas is a very low tax jurisdiction. Banking, wealth and asset management are core
industries, with around $200 billion under management. The island
also boasts some 700 mutual funds with around $100 billion.
Master-Feeder Funds
The corporate structure of a hedge fund depends primarily on whether the fund is organized under U.S. law
(domestic hedge fund) or under foreign law and located outside of the United States (offshore hedge fund).
The investment adviser of a domestic hedge fund often operates a related offshore hedge fund, either as a
separate hedge fund or often by employing a master-feeder structure that allows for the unified management
of multiple pools of assets for investors in different taxable categories.
The master/feeder fund structure allows the investment manager to manage money collectively for varying
types of investors in different investment vehicles without having to allocate trades and while producing similar
performance returns for the same strategies. Feeder funds invest fund assets in a master fund that has the same
investment strategy as the feeder fund. The master fund, structured as a partnership, engages in all trading
activity. In todays trading environment, a master/feeder structure will include a U.S. limited partnership or
limited liability company for U.S. investors and a foreign corporation for foreign investors and U.S. tax-exempt
organizations. The typical investors in an offshore hedge fund structured as a corporation will be foreign
investors, U.S.-tax exempt entities, and offshore funds of funds.
Although certain organizations, such as qualified retirement plans, generally are exempt from federal income
tax, unrelated business taxable income (UBTI) passed through partnerships to tax-exempt partners is subject to
that tax. UBTI is income from regularly carrying on a trade or business that is not substantially related to the
organizations exempt purpose. UBTI excludes various types of income such as dividends, interest, royalties,
rents from real property (and incidental rent from personal property), and gains from the disposition of capital
assets, unless the income is from debt-financed property. Debt-financed property is any property that is held
to produce income with respect to which there is acquisition indebtedness (such as margin debt). As a funds
income attributable to debt-financed property allocable to tax-exempt partners may constitute UBTI to them,
tax-exempt investors generally refrain from investing in offshore hedge funds classified as partnerships that
expect to engage in leveraged trading strategies. As a result, fund sponsors organize separate offshore hedge
funds for tax exempt investors and have such corporate funds participate in the master-feeder fund structure.
If U.S. individual investors participate in an offshore hedge fund structured as a corporation, they may be
exposed to onerous tax rules applicable to controlled foreign corporations, foreign personal holding companies,
or a passive foreign investment company (PFIC). To attract U.S. individual investors, fund sponsors organize
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Seed Capital
Seed Capital Funding
Many hedge fund managers open their business with one or two seed
capital investors, this funding could come through a formal seed capital
program with an established institution such as a bank or seeding
platform, a fund of fund or private source that likes to stay off most
people's radar screen. Many of you already know of the Hedge Fund
Group (HFG) and the connected hedge fund forum at
HedgeFundMessageBoard.com. Last week I had someone post a list of
hedge fund seed capital sources that I wanted to re-post here for everyone's
benefit.
There are over 100 other threads un-related to seed capital on HedgeFundMessageBoard.com and
many consultants, analysts, hedge fund managers and academics visit the site frequently.
MARKETING
Hedge Fund Relationship Building
The best part about writing in this blog is getting 30-50 emails a day from hedge
fund professionals, investors and students in finance. One of the most frequent
questions I get is "can you help our hedge fund raise capital from new investors?"
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I usually refer these people on to others as the firm I am with already has our hands full in raising capital right
now for a set number of funds. One piece of advice relevant to everyone though is mentioned here at
MajorGiftsGuru.com.Tom quotes Woody Allen's great quote: "80% of success in life is simply showing up."
Show up at your local CFA and hedge fund association meetings. Meet face-to-face with local financial
advisors, institutional consultants and foundations. We are looking for something more out of our jobs than a
simple paycheck and if your fund offers something within the parameters of what they are allowed to choose
they might choose your product simply because of your relationship. My favorite sales author Jeffrey Gitomer
always says, "that all things equal people like to do business with their friendsand all things NOT being equal
people still like to do business with their friends." My quick advice to most funds is to make sure your
compliance details are in order and then start "showing up" everywhere you can to start building long-term
multi-year relationships in the industry. Maybe even join the Hedge Fund Group!
Investment Marketing
Investment Marketing Hurdles for Hedge Funds
I just read an interesting article on AllAboutAlpha discussing the challenges today in marketing hedge funds to
new potential investors. Within the piece AAA discusses how the US has one of the most restrictive regulatory
regimes in the world when it comes to the hedge fund industry. The countries of Australia, Canada, Japan and
China are all less restrictive.
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people is 80k-200k with some making 400-800k/year and maybe 3-10 commissions that might trail off over
time. Common compensation for a 3PM as I mentioned above is a retainer of 60k-150k (if they get one) and
20% of fees.
I'm not even 30 years old yet so I'm going the third party marketing route because I want to be able to have
knowledge of the DNA and powerful relationships in every major distribution channel and I want figure out
where the real money and momentum is and be able to shift my focus to that point. I believe it is harder to get
a 3PM job because most want you to have a book of business or solid relationships, but it can be done. To
work in my first third party marketing position I worked for free for 3 weeks to prove myself and took a big cut in
pay coming in the door, but now I'm in my dream job getting experience that I believe will continue to be more
valuable each year.
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If you are starting a third party marketing career you are in good company, dozens of highly experienced
investment and hedge fund marketing/sales professionals are entering the industry each year. In terms of total
firms offering services the industry is growing by over 15% each year. While some professionals may leave an
investment manager or hedge fund to start their own third party marketing firm many more first work or partner
with an existing third party marketing firm. The benefits of starting or working for a third party marketing firm
are many and doing either is relatively easy to do.
If you can raise capital, and consistently bring in $100m-$200M/year you can typically eliminate most types of
political/corporate risks while earning 2-10x more than you would while working for a large institution such as
Lehman Brothers or Goldman Sachs. As the economy goes through this rough patch and bonuses are
skimmed and 50-year-old executives laid off I see this trend of third party marketing startups and career moves
increasing.
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A recent Preqin survey provided some great insight into what is important in marketing hedge fund managers
to institutional investors. They surveyed over 1,000 institutional investors and found that the following factors
were the most important for determining which hedge fund managers to invest in, with the last 3 points barely
having any impact on the decision.
Performance Record
Risk Management
Quality of Personnel
Source of Returns
Fees
Firm Reputation
Client Service
What is interesting about this list from a third party marketing or hedge fund marketing perspective is that
points 2, 3 and 4 can be improved over a year or two by working on a firms investment process, team and risk
management procedures. By taking an institutional best practices risk management approach, working with the
right vendors, hiring the right professionals and ensuring that your investment process is repeatable and is
producing the returns you boast you can increase your chances of winning new institutional hedge fund
mandates. I think this is fascinating and this type of deep insight should be another layer of insight that third
party marketer can provide to hedge fund clients.
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In general a third-party marketer manages the sales cycle for hedge fund clients, involving the chief
investment officer or other portfolio managers as needed to educate potential investors or meet with
analysts. Duties include educating potential investors, or meeting with analysts. Sales cycles can range
from as little as six weeks to as long as 18-24 months. Because of this, most third-party marketing
contracts are for three to five years and often include momentum clauses that ensure that the marketer
is compensated even if the sale comes in after they stop working with this particular hedge fund client.
(For more on the sales side of third-party marketing, check out Sales Director Career Provides Daily
Challenge.)
Due Diligence
Hedge funds conducting due diligence on a third-party marketing firm should always ask questions
about the firm and their employees. Evaluating a potential marketer should be as rigorous as
completing a RFP for an institutional consultant. A partnership is being formed, and investing time and
money with the wrong professionals can be expensive in terms of real dollars and opportunity costs.
Areas to cover while conducting due diligence on a third-party marketer include:
Past work experience
Current licensing and broker check
Asset-raising history throughout their careers
Asset-raising track record while working together within the firm
Referrals from past hedge fund clients
Number of years experience
Scope of their distribution channel expertise
Number of total current clients
Potential commitment of time in terms of hours per week and duration of the contract, and
Personality and culture of the group
At the same time, third-party marketers need to perform due diligence on a potential client. If a hedge
fund manager has a poor reputation, it could reflect poorly on the marketer that is doing the promoting.
Conclusion
The potential to soak up 20% of a hedge fund's management fees is an obvious attraction to this career
path. However, this is a challenging, cutthroat industry to work in. While third-party marketing services
will always focus on marketing and sales, their service models continually evolve and adapt to meet the
demands of their hedge fund clients.
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Hedge funds conducting due diligence on a third party marketing firm should always ask questions about the
firm and their employees. Evaluating a potential marketer should be as rigorous as completing a RFP for an
institutional consultant. A partnership is being formed, and investing time and money with the wrong
professionals can be expensive in terms of real dollars and opportunity costs. Areas to cover while conducting
due diligence on a third party marketer include:
Past work experience
Current licensing and broker check
Asset-raising history throughout their careers
asset-raising track record while working together within the firm
Referrals from past hedge fund clients
Number of years experience
Scope of their distribution channel expertise
Number of total current clients
Potential commitment of time in terms of hours per week and duration of the contract, and Personality and
culture of the third party marketing group
At the same time, third party marketers need to perform due diligence on a potential client. If a hedge fund
manager has a poor reputation, it could reflect poorly on the marketer that is doing the promoting.
Switzerland-Based Marketing
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Family ffices have more established due diligence procedures, often involving
consultants or internal analysts which do nothing but look at hedge funds or alternative investment products.
Financial advisors have lower minimum asset levels for what they will consider investing. 90% of family offices
only seriously consider investing in hedge funds with at least $75M-$100M, and many require $250-$300M or
even $1B in assets under management.
Family offices are more tight lipped. It will take more effort to develop a relationship, meet in person and get
clear feedback on why or why a hedge fund is a good fit for what they are looking for.
Family offices are harder to identify in the first place. Financial advisors are easier to find, there are more of
them and they advertise more openly. Some family offices advertise but many stay below the radar and
some purposefully don't even have a website.
While family offices service to high net worth investors almost exclusively many financial advisors work with a
broad spectrum of client types - this might require more caution by them and your fund in marketing
products to them. It might also mean sorting through more financial advisors to find one with several
HNW clients.
In my experience financial advisors seem much more sensitive and motivated by how they will earn a
commission or income from the transaction whereas many family offices charge rich enough fees that
this is less of an issue.
While some financial advisors may take 16-24 months to really get "on board" with a relevant hedge fund
manager, understand your investment process and possibly invest most will come to terms a bit before
then. Family offices on the other hand often take 18-24 months just to complete their due diligence and
committee meetings, it is a very long sales process.
Both family offices and financial advisors require genuine relationship-building efforts and tenacity
From a legal standpoint there may be other precautions your fund should take but I am not a legal expert so I
can't provide any guidance within that space.
I recently published a blog post which provided more tips on marketing hedge funds to financial advisors here:
Marketing Hedge Funds to Financial Advisors and I have 30 additional articles within the Hedge Fund
Marketing Guide section of my blog.
Finally, I run small websites on both third party marketing and family offices which may be of use.- Richard
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Almost every hedge fund manager has asset-raising goals and ambitions. I often get emails from hedge fund
managers looking for someone who can help them raise capital. In general, hedge funds can raise assets
through either:
1) Increasing their effectiveness within current channels of distribution, or
2) Pursuing new channels of distribution
Due to the difficulty in recruiting experienced hedge fund marketing professionals, most hedge funds stick to
where they have raised assets in the past, in the areas they are are most comfortable with and have seen
some success either by others or their own firm in the past. Many aren't aware of all the new channels
available to them, or how to capitalize on each one.
The financial advisor channel I recently read a guidebook on the advisor channels that was written by
Michael Sakraida, an investment sales expert. Mike handed out this guidebook, titled "7 Key Rules for Selling
Hedge Funds to Financial Advisors" at a recent speech he gave to a group of hedge fund professionals. Many
were surprised to hear that the advisor channels represent around $10 trillion in assets under management.
Mutual misunderstanding Michael Sakraida shared with me his enthusiasm for the advisor channels for
hedge funds. Mike commented that "right now a substantial majority of advisors don't understand hedge funds,
and an equal majority of hedge funds don't understand advisors." He went on to say that "the hedge funds that
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fully understand and work with the unique advisor channels can raise substantial assets levels." While many
hedge fund marketers focus on institutional asset raising efforts, some professionals such as Mike are
experienced in raising assets and setting up distribution channels within this area.
+ The 7 Key Rules for Selling Hedge Funds to Financial Advisors Mike will email this guidebook to those who
email their requests to him. In the meantime, for those interested in a quick listing of these key rules right now,
I've listed them below.
Rule #1 Distribution Rules Over All
Rule #2 It is About the Two-Stage Sale
Rule #3 Advisors Aren't Consultants or Institutions
Rule #4 It isn't About Your Brilliance
Rule #5 You Must be Passionate
Rule #6 Build Valuable Relationships
Rule #7 Need a Plan and Timelines
If you work for a hedge fund and want to connect directly with Michael Sakraida and his firm, Coastal
Consulting, his email address is m.sakraida@att.net.
-
Richard
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3PM
Marketing To
Institutional Investors
SEI recently completed a survey of institutional investors and
their perspective on hedge funds. 100 institutions were
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surveyed and 47 were currently invested in hedge funds. Even the ones who were investing in hedge funds
had extra due diligence steps to ensure that each allocation to a hedge fund manager is done in a deliberate
and cautious fashion.
The problem I have with this is often selecting hedge funds in a "deliberate and cautious fashion" often boils
down to a RFP or due diligence checklist where you are basically looking for those 30 hedge funds that can
check every box on your list. This is not a bad thing to have in itself but often it becomes the real life and center
if not whole process in selecting a hedge fund manager.
"Headline risk" was named by 37% of survey respondents as their biggest worry, followed by lack of
transparency (19%) and poor performance (15%). Institutions also remain cautious in selecting hedge funds,
the survey found, devoting an average of seven months to due diligence and 12 additional weeks to approval.
Interviewees ranked "consistent, stable returns," "uncorrelated returns," and "high risk- adjusted returns" as
more important objectives than "high absolute returns." Seventy-two percent of interviewees said the
investment strategy, rather than performance, is their starting point for hedge fund selection.
Paul Schaeffer, managing director of strategy and innovation for SEIs investment manager services division
says, To maintain that growth trajectory, the hedge fund industry will need to branch out from its traditional
high-net-worth, foundation and endowment clientele to serve the broader institutional market. He adds: But to
compete for those assets, the industry must recognize that large institutions have a distinct set of demands.
Top 4 Factors Institutional Investors Look For In Hedge Funds
Reporting & Transparency (85% of institutional investors reported that they would not invest in a strategy they
did not understand)
Institutional Quality Infrastructure and Operations (54% of institutional investors pointed out that better
managed firms return higher performance)
People. Build stable hedge fund management teams At all levels the hedge fund company
Shift away from focusing exclusively on performance to investment disciplines
The white paper concludes by stating:The take-away message is that institutions clearly prefer to do business
with institutional-style organizations," concluded Schaeffer. "For hedge funds, the challenge will be to fit the
profile of an institutional-quality fund while preserving the performance attributes that attracted major investors
in the first place."
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Richard
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Over the weekend I got an email from a hedge fund professional working for a very well known bank in
London. He was looking for advice on getting into third party marketing or hedge fund sales. He
specifically asked if I knew of any great books on third party marketing or hedge fund sales and wanted
details on typical fee structures/compensation, etc. My response is pasted below as I thought it might
answer some other people's questions while looking for information on marketing hedge funds.
Thanks for the email. There are no great books on third party marketing that I am aware of, everyone is
pretty close vested within the industry. I haven't found a great book on investment sales either, but I
know there are a few of those if you look around on Amazon. If you are looking for great books just on
sales I really like Jeffrey Gitomer's 3 books: The Sales Bible, The Little Red Book of Sales Answers,
and Yes! Attitude. Those books have changed my career.
Hedge fund marketing & sales fee structures vary depending on the type, reputation, and abilities of the
third party marketing firm (3PM firm). Some retain only 2-3 clients at a time and charge retainers for
this focus of their attention while others might work with 10 money managers (clients) at once and only
get paid on commissions. Usually commissions is 20% of both the base fee and performance fee when
working with hedge funds.
If you work for a hedge fund you will be restricted to their strategy(s) so if their performance dips or the
strategy goes out of favor you might not raise any money and it wouldn't be your fault. If you work for a
3PM firm you would probably get to market 2-3 different money managers in some capacity across
diverse distribution channels such as endowments & foundations, broker dealers, and direct to high net
worth individuals. If a strategy goes out of favor you just find a new money manager to market as a
firm, you avoid that downside of being a hedge fund sales professional. Common compensation for
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internal hedge fund sales people is 80k-200k with some making 400-800k/year and maybe 3-10
commissions that might trail off over time. Common compensation for a 3PM as I mentioned above is a
retainer of 60k-150k (if they get one) and 20% of fees.
-
I'm not even 30 years old yet so I'm going the third party marketing route because I want to be able to
have knowledge of the DNA and powerful relationships in every major distribution channel and I want
figure out where the real money and momentum is and be able to shift my focus to that point. I believe
it is harder to get a 3PM job because most want you to have a book of business or solid relationships,
but it can be done. To work in my first third party marketing position I worked for free for 3 weeks to
prove myself and took a big cut in pay coming in the door, but now I'm in my dream job getting
experience that I believe will continue to be more valuable each year.
Interested in hedge fund marketing? Read dozens of more hedge fund marketing & sales articles along
with details on third party marketing within the Hedge Fund Marketing Guide.
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Why do hedge funds need to hire public relations experts to help protect and grow their fund?
Presently, most new hedge funds are launched with money from friends and family, while more established
players can launch new funds from a pool of existing investors. As mentioned previously, hedge funds are
prohibited from advertising and marketing. (Once contacted by a potential investor, a hedge fund can send out
marketing material.) Thus, in order to attract new investors, hedge funds need to find a way to get their name
out there. One way, of course, is through the media.
Most financial journalists have contact with a hedge fund manager or two. These managers are excellent
sources of information, though much of it is negatively directed towards companies. As such, much of the
back-and-forth between the media and hedge fund managers is off the record. The SEC's new rules, however,
are aimed at transparency, and with competition among hedge funds fierce, it certainly behooves hedge fund
managers to use their investment expertise to help the public, and drum up investors in the process.
I spoke to a number of hedge fund managers recently who, for the most part, agreed that the sole purpose a
hedge fund may engage a public relations firm is in an effort to market to new investors. I also spoke to
Richard Dukas, the president of New York-based Dukas Public Relations, a PR firm that has handled hedge
fund clients in the past and counts a handful of funds as current clients.
"Most hedge fund managers are still extremely reticent when it comes to speaking to the media," Dukas said.
"What I've found is that it's very difficult to solicit managers to work with you."
Dukas says that the reticence comes from a feeling that hedge fund managers should be secretive and not
share their ideas with anyone but their own investors. However, the new SEC regulations, combined with the
movement towards activist investing, may change that.
"Maybe [hedge fund managers will realize] that what they're doing is not so secretive after all," Dukas said.
For an example of a hedge fund that has embraced the concept of working with the media, look no further than
Dukas' client Haven Advisors, which has racked up considerable press over the past six months
(http://www.dukaspr.com/page.asp?ID=355).
I mentioned that competition among hedge fund managers is fierce, and it's not going to get easier. For
example, Janus Capital, one of the world's largest mutual fund mangers, recently launched a long-short mutual
fund with the goal of absolute return. In other words, Janus is offering investors access to a mutual fund that
acts in the same way that most hedge funds act, but without the stiff management fees. More mutual funds
such as the one launched by Janus should hit the market this year, opening up a whole new pool of investors
to the idea of hedge funds. The biggest reason, however, I feel that hedge fund managers need PR people is
the rise of activist investing.
Activist investing is not new, but for whatever reason, hedge funds ratcheted up what we call "cage rattling" last
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year. The norm goes something like this: 1) A hedge fund builds up a large stake in a company by buying stock
on the open market because the fund feels the stock is undervalued; 2) The fund approaches management
and the board of the company and offers suggestions about how to "unlock" the value of the stock; 3)
Management and the board ignore the fund, though in a non-combative way; and, 4) The hedge fund gets tired
of being jerked away, and publicizes its "cage rattling" through an SEC filing (usually attaching letters that it
has sent the company's management and board).
In some cases, companies capitulate, mostly because other investors have latched onto the ideas put forth by
hedge funds and begun demanding change. In other cases, companies will battle hedge funds, hoping to
eventually shake them out as investors. Regardless of the eventual outcome, hedge funds need public
relations people because companies inherently have a public relations machine built into their organization.
While hedge fund managers complain in SEC filings and on conference calls, companies are utilizing their
public relations resources to work the media and investors. One good example of the company-versus-fund
public relations mentality is Time Warner.
Last year, billionaire corporate raider Carl Icahn built a more than three percent stake in Time Warner. In doing
so, Icahn began demanding a number of changes, including a massive stock buyback and a better
monetization of Time Warner's AOL asset. Time Warner gave in partly, announcing a $12.5 billion stock
repurchase. (FYI, stock repurchases help companies boost earnings by giving existing shareholders more
equity for their shares; i.e., existing shares become more valuable because there are less shares outstanding
when the company buys back stock.) Time Warner, however, didn't do everything that Icahn asked.
When Time Warner announced a wide-ranging pact with Google, Icahn was seemingly furious, warning the
company ahead of the deal that it was making a mistake. Time Warner, with its PR machine in full gear,
basically blew off Icahn, who was working the media in his own way. The end result was a deal that Time
Warner wanted and was generally hailed for, and a deal that Icahn apparently hates. At last check, Icahn was
having difficultly finding potential candidates for a reconstituted board that he wants to install at Time Warner.
Negative PR towards Icahn, no doubt, has contributed to this difficulty.
Attracting hedge fund clients is certainly not easy, but I believe a persuasive case can be made that hedge
funds need to begin exploring spending some money on PR. The best pitch is a simple one: You want to make
money, and we can help you do it. That's a proposition even the most secretive hedge fund manager should
listen to.
To contact Richard Dukas regarding hedge fund public relations services or to answer any questions
you may have you may email him at Richard@DukasPR.com or visit his website at http://DukasPR.com.
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Hedge Fund PR
Please visit HedgeFundBlogger.com or HedgeFundGroup.Org for more information.
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Michael Barron who is the CEO of Knott Capital Management commented in the article, Everyone knows the
Fidelitys, the Putnams and the rest of the larger firms in our industry. For some of the smaller firms, this
is aw ay you can build recognition and credibility
Ignore the monitor and the audience, imagine speaking to a single viewer
Maintain eye contact with the interviewer and not the camera
Speak slowly and match the interviewers tone and pace
Short brief 30 second sound bites are ideal for TV appearances
- Richard
Below is a guest article provided by Dukas Public Relations. It focuses on financial public relations and how
some hedge funds are using PR experts to help them navigate the waters of mainstream media outlets.
While it is illegal to promote hedge funds, there are ways to indirectly do so. And the SEC is considering new
rules that could allow financial PR groups more room to maneuver.
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Hedge funds, one of the fastest-growing corners of the financial industry - one insider calls them the new dotcoms - remain an elusive domain for Public Relations experts. Vaguely understood by the public, largely
unregulated by the Securities and Exchange Commission (SEC), and dabbled in by only wealthy or institutional
investors, the $850 billion hedge fund world does not lend itself easily to publicity.
For one thing, promoting hedge funds is illegal: Only investors accredited by the hedge funds are allowed to
get information about them. If a fund is promoted beyond accredited investors, the SEC can halt money going
into it and even level sanctions.
Hedge funds are the purview of large financial investors, like investment banks, and the well-connected
wealthy who can stomach sharp windfalls. Like mutual funds, their regulated cousins for the common man,
hedge funds pool investors' money and then invest in generally high-yield instruments.
Without much oversight, pretty much anything goes - financially speaking - when it comes to this investing,
according to the SEC, including speculative practices like leveraging that can amp up the risk of big losses. All
such funds have high investment minimums - at least $1 million in many cases - that keep them within the
domain of accredited investors legally allowed to play their investments close to the chest. Many now are
becoming part of retirement funds.
The SEC estimates that hedge fund assets have exploded 15-fold since 1993. A Factiva search of "hedge
funds" turned up 30,720 media mentions in the 36 months from January 2000 through December 2002, but
34,201 mentions in just the last 19 months. Still, hedge funds seem secretive to the public, says one financial
expert, and even to the business media.
"I think there's a perception by the general public that hedge funds are opaque, secretive, and mysterious,"
says George Lucaci, MD of capital markets at hedgefund.net, a web source for hedge fund news and
performance data. "And unfortunately, the media has propagated that myth."
"There are rules to how much you can say and when, so they have not traditionally done [Public Relations],"
says Howard Zar, IR partner at Porter Novelli, of hedge fund managers.
How, then, do the funds promote themselves? They do, in fact, find ways to use Public Relations - though
staying within the bounds of the law is tricky. And if proposed rules by the SEC are passed, they might be using
financial public relations firms even more.
Promotional tactics
The promotion of hedge funds is different from other financial public relations efforts and it demands one rule
of thumb, really: They can't advertise or engage in general solicitation. Because only accredited investors can
come on board, usually hedge fund managers seek out investors among people they know - family, friends,
colleagues - and wealthy people, as well as institutional investors.
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Still, hedge funds can take two approaches to, in a roundabout way, promoting themselves.
Hedge funds can publicize the expertise of their portfolio managers if they also manage other registered
products. Those managers can talk up the company and the registered products - they just can't talk about any
hedge funds the company maintains. "One of the things you often find in hedge funds is people who have a lot
of expertise," says Zar. "So they can speak as experts and gain exposure for themselves."
A company also can promote registered products that are similar in management to the hedge funds - but,
again, it is not allowed to talk about the hedge funds themselves.
Richard Dukas, President of Richard Dukas Communications, a financial public relations firm that advises
hedge funds, gives an example of these promotional approaches in action. A hedge fund manager his firm
counsels, Keller DiLeo Cohen & Co., has about $500 million under management. It also handles M&A
arbitrage, and its CIO is an expert in M&A. When speculation over a merger between Disney and Comcast
swirled in June, Dukas' PR firm touted the CIO to the media for his expertise in M&A. Media reports involving
the CIO noted that he worked for a hedge fund manager, and the reports named the firm.
But the key, as Dukas and others point out, is that the hedge fund itself, such as its strategy and performance,
was never promoted - only the expertise of its CIO.
This promotion has a two-fold effect. The manager's name is out there, raising visibility and credibility for the
hedge fund, Dukas says, and it also bolsters the fund's reputation with existing and potential investors.
But one problem with this approach is the subjective nature of whether a company slides into promoting the
hedge fund. Promotion, in this case, is like the classic definition of obscenity: People know it when they see it.
The SEC does not define what it means by "general solicitation" or "advertising." And what those terms mean
to different hedge fund professionals seems to vary.
"There's no prohibition: Thou shalt not be quoted," says Michael Robinson, director of Levick Strategic
Communications in Washington, DC, and a former public affairs director at the SEC. "But you have to be
careful what you say."
Without clear guidelines, hedge funds must make their way carefully.
"There's not a uniformity of opinion here, but as a general rule, all of these interests and funds are privately
placed," says Eliot Raffkind, a partner at Akin Gump Strauss Hauer & Feld, a law firm based in Dallas and New
York that works with hedge funds. "There are no sort of black-line tests here under existing laws. So the
question is, at what point are you giving so much information to a reporter that you're engaging in general
solicitation or advertising? My view is you shouldn't be mentioning the name of your fund; you shouldn't give
any of the specifics of the fund."
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receive up to $350M. From my experience I would guess that 68% of first year hedge fund seed capital levels
range from $3M to $25M.
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Below are three links to help you learn more about capital introduction services in general.
(If you are looking for a prime broker, capital introduction, or third party marketing services let me know and I
can help you network and find a group that might work well for your situation.)
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Unlike other hedge funds, however, they are able to replace it.
Faced with investors withdrawing big chunks of change, the high-profile hedge fund trio have reopened funds
long closed to new investors and have raised billions of new dollars to replace the unhappy investors heading
for the doors. Singers Elliott Management Corp. has raised $3 billion in the third quarter, and plans to raise
another $1 billion, Bloomberg News reports.
Of course, its easier to raise new money when you are making money, as is Elliott, which has returned about
6% this year. Likewise, Brevan Howard Asset Managements Brevan Howard Macro Fund, which is up 17%
this year, has more inflows than outflows, according to Bloomberg. Read More...
Raising Capital
Why do most salespeople fail in hedge fund sales? Here's one take:
44% of all salespeople quit trying after the first call
24% quit after the second call
14% quit after the third call
12% quit trying to sell their prospect after the fourth call*
This means 94% of salespeople quit before the fifth phone call while 60% of all sales are made after the fourth
call. This means that the overwhelming majority of hedge fund salespeople probably don't even give
themselves a shot at selling their products.*Data from Herbert True, a marketing researcher at Notre Dame
University
Mid-day Update: Funny story, I wrote this post at 6AM this morning. I just got back from lunch and caught a call
back from a financial advisor I have emailed once and left 5 voicemails for over the past 6 months. I had heard
nothing and now he is interested in investing in one of our products. Tenacity paid off this time around.
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A recent study showed that hedge funds receiving seeding and operational assistance outperform broad hedge
fund indexes and average hedge fund performance figures. This study was completed by George Martin and
Joseph Pescatore from the University of Massachusetts and Jefferies Asset Management.Pescatore makes
the point that in the past there was a somewhat negative connotation to discussing how a hedge fund may
have received seed capital or operational support during their firs 3-5 years of operation. Specifically he said,
The question investors asked a hedge fund manager, if you are any good, why do you need these guys? I
think not only has it changed, I think that has completely reversed. It seems that Pescatore now believe that if
you are that good you should have money being thrown at you from multiple hedge fund seeders.While some
people may not be as positive as Pescatore on seed capital being a good thing, I believe the general feeling is
if you arent tied down by stringent terms or pressure that impact your investment process as the result of the
seed capital or support than it is a positive thing and only bolsters your business showing a vote of confidence
by an outside firm.- Richard
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raising capital from institutional investors. The general view of the whitepaper they produced suggested that
hedge funds will need to continue to adapt their business models and approach to communicating their
investment process to the interests and concern of institutional investors if their strong growth in raising capital
is to continue. Paul Schaeffer, the managing directory of strategy and innovation for SEI was quoted as saying,
The hedge fund industry must recognize that the large institutions have a distinct set of demands concerning
issues such as the quality of infrastructure, transparency and risk.
Some of the stated differences in raising capital from institutional investors instead of high net worth investors
included:
More attention is sometimes initially paid to strategy offered than the individual hedge fund managers
Longer hedge fund due diligenceprocesses and investment horizon
More heavy utilization of outside consultants to help evaluate hedge fund managers
Growing concern over hedge fund risk management and headline risk
Strong preferences for transparency of the hedge funds investment process and tools applied to it
More likely to invest in $100M+ or $500M+ hedge funds vs. smaller boutique shops
I think the most interesting part of this article was the fact that it reported that over 85% of those interviewed
said they would not invest in a strategy that they dont full understand, and 80% said it was critical for
managers to focus on the funds original strategies.
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The key is not to "call the decision maker." The key is to "have the decision maker call you."
- Jeffrey Gitomer
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4. Choose a moment of time where you felt completely confident, successful, and rewarded for something that
you accomplished and really earned. Picture this moment in your mind and re-live it as if it were
happening again right now, replay it in your mind. Now try bringing this picture to the forefront of your
thinking each morning before you start on your calls or whenever you are not motivated to jump on your
next call instead of searching for a pair of Red Sox tickets on Google.
Note: It has been brought to my attention that my title for this blog is also the title of a great book on the topic
written by George Dudley. This connection was not intended but I thought it was only fair to cite this book as a
resource for those how want more information.The Psychology of Sales Call Reluctance: Earning What You're
Worth in Sales
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phone call, the trick is getting the prospect on the phone in the first place. Don't have them not take your call
because they do not know who you are. Email the prospect introducing yourself and why you would like to
have a 5 minute conversation in 3-5 sentences or less and call 10 minutes after sending the email out.
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to work
I Workout at least 3 times a week
I read 15 pages of attitude changing articles or books every morning while I am eating breakfast. (see Jeffrey
Gitomer's Little Yellow Book of YES!Attitude)
I have created a 1 page lamented page of the top 50 business and sales lessons I have learned and I have
posted it in my shower, on my bathroom mirror, and behind my desk at work. I do my best to read this
list twice a day to remind myself of what is important.
I set BHAGS for myself. BHAGS are Big Hairy Audacious Goals as described by Jim Collins in Good to Great.
My current BHAGS? I want to become THE expert in investment marketing and sales, run 50
investment websites that rank in the top 3 slots of Google search results, and become a best selling
author.
I try to find a lesson to be learned from each "negative experience." If nothing else a negative experience
should always tell you something about yourself.
I am always learning and exploring something new. It was getting into Harvard and moving to Boston, now it is
learning all I can about investment marketing and sales, the psychology of influence, and web
marketing. As soon as you stop being curious and challenged you become stale and un-motivated.
I cut off or drastically reduce communication with negative people.
I don't watch the local news. It is worthless. How often do you see a news story about a generous church
donation, a child winning a science project award, or a organ donor saving someone's life? Not nearly
as often as a plane crash, fire, or robbery. If you have to get the local news read it online for 5 minutes
and save yourself some time.
I am taking a four month course on Positive Psychology this spring that should be very interesting. I will be
updating this blog with those details as soon as I can. Let me know if you have any other great tips on keeping
positive attitude or using self-talk.
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once had someone be so friendly and upfront like that. It was a refreshing change from the monotone burnt out
tone of voice I usually end up listening to. What is important is not what happened during this phone but after I
realized how valuable of a contact he had given me. I felt strongly obligated to thank him or re-pay him in some
way.
This has taught me to always see the humor in situations and give value away freely to those in need of help.
One un-related sales phone call lesson I have learned is that if you have highly qualified the END person that
you are trying to reach they will be happy to talk to you because your service is relevant to them and necessary
for their success.
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If you need a list of hedge fund of funds or are thinking of purchasing a fund of hedge fund directory or
database here are my top 9 tips:
Take the time to call or at least email the firm who offers a fund of hedge fund database, these will sometimes
be referred to as fund of hedge fund or fof directories.
Only work with well known, reputable firms that specialize in providing hedge fund databases or hedge fund of
fund databases. Avoid small shop fly-by-nighters at all costs
Take the time to really get familiar with the information provided within the database, ask for a sample of what
the information will look like. It really is an investment that could save you literally thousands of hours IF
you pick the right hedge fund database for your business model. See a Hedge Fund of Fund of Hedge
Fund Database Sample.
Ensure that the database is updated at least once a quarter, contact details and firm information gets old very
quickly.
Expect to pay $750-$8,000 for a high quality hedge fund database, many cost around $2,800 while others can
cost up to $30,000/year. Be sure and know the trade-offs of buying a physical database versus
subscribing to one online. If you don't have a hard copy of the data in Excel or Access format you may
not be able to use it once a time-based subscription expires. For some firms this is fine, for others it
would be a costly mistake.
Make sure the hedge fund database you use is compatible with your systems. Do you use SalesForce? Act?
Goldmine? Excel? Word?(lord help you)
While you are kicking the tires of your potential new hedge fund database make sure it has complete
information on a firm. You dont want to call a firm asking if you can send over your PowerPoint
presentation only to find out they are really a competitor or a division within another firm you called that
same day.
Dont steal a database. This may sound obvious, but it is common for employees to copy parts of a database
for later use or use some other un-ethical means of obtaining database details. Dont, it is not worth it.
Always take the high road and you can stand behind every action you have ever taken.
This list only contains 9 tips instead of 10 because this one is worth more than the rest combined. Ask hard
questions when you are buying fund of hedge fund database. Ask how often your database details will
be updated. Ask exactly how many hedge funds are updating their information. Some databases will
say that they have details on 9,000 hedge funds while the reality is that some of them haven't updated
their information in 4 years...make sure all of the data is being updated at least once a year.
Let me know if you have any extra tips you think I should add to this list. You may comment below, append this
list within your own blog or email me at Richard@RichardCWilson.com. If you are interested in buying a fund
of hedge fund database they are offered by Pinnacle, Brighton House and Barclays.
Interested in hedge fund marketing? Read dozens of more hedge fund marketing & sales articles along with
details on third party marketing within the Hedge Fund Marketing Guide.
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Many sales books and prospects alike say that white papers can help engage potential customers and provide
value first while also positioning yourself as an expert in your field. If this is true why aren't there more white
papers on your industry?
Most people aren't great writers
Most people don't see the value in writing and sharing expertise.
Most people don't believe they have time to write.
Some people who are technically qualified on writing white papers aren't experts in marketing and sales so
they may not get their work widely distributed.
Maybe there are many white papers out there and you haven't seen them yet. Do some niche specific
searches on Google to check what your competitors have written first. Develop unique content and
insights for your white paper but steal the non-trademarked or copyrighted styling and organizational
best practices of the white papers you find for your own use.
This is great news for you. If you are willing to do the hard work you can stand out as an expert and you will in
fact become an expert learning more about specific niche topics than many of your competitors.
What is a White Paper?
White papers are opinion pieces that educate, state a position, suggest a solution to a problem, or introduce a
new technology or process.
Parts Of a White Paper
Abstract
Problem Description (2-3 paragraphs)
New class of products
Product's use in solving the problem
Conclusion
White Paper Writing Tips
If you don't engage the reader within the first paragraph they will never read the rest of your white paper.
Focus on pains of the reader, describe those pains and explain the further consequences of the current state of
business. This will help you connect with the qualified prospects who you are targeting.
Focus on education and not self-serving press release information
Write objectively use facts, quotes, statistics, and surveys where possible
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Keep your white paper to between 3-4,000 words. 2,000 words seems too skimpy sometimes and anything
longer most people won't read.
This chapter presents concise practical methods to help you become more creative. It will cover the creative
process and while also suggesting 6.2 practical tools to increase your creative abilities. This chapter uses
scientific research studies and direct knowledge from marketing and sales professionals to help you
differentiate yourself and your product or service.
Why Study Creativity?
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Psychology experts, innovation consultants, and sales professionals all agree on one thing, you can learn to be
creative. Most people would agree on a scale of 1-10 that the value of creativity would be rated as an 8, 9, or
10. If asked how creative you are how would you rate yourself? How would your co-workers rate you?
(Gitomer, 2004). Research studies have noted that in a group of 20 people only 2-3 participants will say they
are a creative person yet this is a learnable skill that virtually everyone values. Around 10% of us see ourselves
are creative and even those few individuals report a general inability to be highly creative during the 9-5
workday (Mostert, 2007). Part of this problem might be that the extrinsic demands and pace of work does not
allow your brain time to look at the big picture and ponder on large challenges at work. This chapter will help
you come up with more creative ideas and enable you to discover and refine those ideas faster than you could
before.
Psychologists distinguish between two types of thinking, divergent and convergent. Divergent thinking is
generally thought of as being closely related to creativity with thoughts diverging into a wide variety of topics or
associations. Convergent thinking brings together information focusing on a problem that usually has only one
correct solution. The stages of creativity include preparation, incubation, illumination, evaluation, and
elaboration. You can see in Table 1 that the ability to think in both convergent and divergent fashions is
required to maximize the value of your new ideas (Carson, 2007). Switching between convergent and
divergent modes of thinking is not easy for most people, but creative aides such as the creative tools
suggested below can make the process easier (Parnes, 1975).
Creativity Tools
Highly creative people make more remote associations and come up with more unique solutions that the
average person (Gruszka, 2002). These creativity tools can help increase the number of remote associations
you make, direct your thinking, save you time, and add value to the final solution you choose to address a
challenge. This list of tools is not original or exhaustive but it is valuable as a starting point for increasing your
creative abilities as an investment marketing professional.
The tools in this chapter include:
1. Hiring and Managing for Creativity
2. Enhancing Creativity
3. SCAMPER 4. Idea Quota 5. Mind Mapping 6. Future Fruit 6.2 Sharpen Your Saw
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Not all of these must be present and they are not of equal importance but each usually plays a role and can
contribute to creative results (Sternberg, 1998)
Jeffrey Gitomer is an internationally recognized sales expert and author. His research and feedback does not
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come from controlled scientific studies but from trial and error while toiling as a low level sales associate for
years before his hard work and creative selling techniques earned him millions of dollars as a sales executive
and eventually CEO. He has trained thousands of sales professionals on implementing his creative methods of
selling and believes the following 13.5 elements are important factors in your creative success*:
1) Brains
2) Positive Attitude
3) Observing
4) Collecting Ideas
5) Self Belief
6) Support Systems
7) Creative Environments
8) Creative Mentors and Associations
9) Studying Creativity
10) Studying the History of Creativity in your Industry
11) Using Creative Models
12) Open to Risking Failure
13) Seeing Your Creativity in Action
13.5) The Ridicule Factor
*(Gitomer, 2004)
All 13.5 of these elements directly tie into at least one of the 9 scientifically researched methods of creativity
enhancement; confirming that the scientific research on this subject is very relevant to investment marketing
and sales professionals in the field. Many of these factors of creativity mentioned by both Sternberg and
Gitomer can be changed and addressed individually to increase your creative potential.
Equally as important as enhancing creativity is identifying feelings or processes that may limit creative results.
Research shows that the following can block creativity: fear of failure, fear of success, guilt, shame,
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overcoming fantasies, stubbornness, fear of loneliness, and identify issues (Bernard Golden, 2007 as
referenced by Carson, 2007).
Seeing a great idea is one thing HAVING a great idea is another. Big difference between the guy that
invented a pet rock and the guy that bought one. One (the inventor) is a lot more fulfilled (wealthier) than the
purchaser.
Jeffrey Gitomer
Michael Michalko in his best selling book, Thinkertoys, provides a list of questions for investment marketing
professionals who want to use this technique. Consider the task for revamping your overall selling techniques.
First, you should break up the topic of selling techniques into 5-6 parts, one of which might be focused
exclusively on prospecting. Some SCAMPER questions that might help you come up with new prospecting
methods could include*:
What procedure can I Substitute for my current one?
How can I Combine prospecting with some other procedure?
What can I Adapt or copy from someone elses prospecting methods?
What can I Modify or alter the way I prospect?
How can I put my Prospecting to other uses?
What can I Eliminate from the way I prospect?
What is the Reverse of prospecting?
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Below is an example of a mind map that a Vice President of a light bulb company drew. He diagrammed the
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system of 4,000 distributors that his firm worked with as it appeared in his head.
This map showed him where more information might be needed and also where opportunities might exist. This
led him to think about his business in many new ways and helped him form his breakthrough idea: energy
management. A new division of the company was created around this theme and it led to a huge increase in
sales. The Vice President later remarked, The map led to a cascade of ideas that motivated us to act and
create a whole new division (Michalko, 2006).
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Creativity can be learned, become a student of it. Create a one page cheat sheet for creativity tools and other
process improvement tips that describes each lesson in 1-2 sentences. This will help you integrate best
practices and new methods of thinking and acting into your daily life. Laminate 5 copies of this piece of paper
for your desk, bathroom mirror, shower, and anywhere else you consistently spend time so you will be
reminded of them.
Summary
Imagination is more important than Knowledge
Albert Einstein
The tools listed above attempt to maximize your creative abilities through sparking divergent thinking and
revealing remote associations that might lead to new valuable investment marketing ideas. To become more
creative identify which areas of creativity enhancement you should be working on, identify current blocks to
your creativity, try using a few of the tools and see which ones work well for you, and become a student of
creativity.
References
Allocca, M. A., & Kessler, E. H. (2006). Innovation speed in small and medium-sized enterprises.
Gitomer, J. (2004). Creativity and selling. The little red book of selling (1st Edition ed., pp. 150). Austin,
Mostert, N. M. (2007). Diversity of the mind as the key to successful creativity at unilever. Creativity &
organizations: Three case studies. Creativity & Innovation Management, 15(3), 268-278.
Napier, N. K., & Nilsson, M. (2006). The development of creative capabilities in and out of creative
organizations: Three case studies. Creativity & Innovation Management, 15(3), 268-278.
Parnes, S., & Bondi, A. (1975). Creative behavior: A delicate balance. Journal of Creative Behavior, 9,
149-158.
Rickards, T., & Moger, S. (2006). Creative leaders: A decade of contributions from creativity and
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Tassoul, M., & Buijs, J. (2007). Clustering: An essential step from diverging to converging. Creativity &
Innovation Management, 16(1), 16-26.
InvestorRelations:
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are satisfied independently verifying everything that matters, including, assets under management, returns,
and even a year end audit. They fully understand the risks that are involved.
Nobody likes to be put in a box, but it is important to realize that the types of investors can vary widely so the
array of marketing materials you have should include brief one pagers to very detailed institutional-quality
PowerPoint presentations and third party analysis for those most scrutinizing parties. My experience has been
that marketing material first built to the highest standard and then summarized into smaller "dumbed down"
pieces later can be very effective and versatile.
Read dozens of additional articles like this within the guide to Hedge Fund Terms and Definitions.
-
Gitomer Conference
Jeffrey Gitomer Sales Conference
I just came out of my first conference held by sales master Jeffrey Gitomer. His presentation was even better
than I expected, he was funny, quick witted and knew his stuff. While most of his speech focussed on his Little
Red Book of Selling the lessons contained within it are mostly the type of fundamental truths in sales that are
always good to refocus on and make sure you are completing. I own 6 of Jeffrey Gitomer's books and today I
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Orienting Reflex
Influence Through Orienting Reflex
One way in which people are influenced everyday is through our orienting reflex. The orienting reflex is the
process we go through while reacting to something novel, new, or mysterious. It is what makes first dates,
roller coasters, and vacations to exotic islands so enjoyable.
When a loud alarm goes off we stop and ask ourselves why it is going off and if it has any effect on us. If you
are in the middle of a movie at your local theater and the fire alarm starts to go off everyone will look around for
a minute before taking action. Each person is orienting themselves to this new situation and combination of
variables and they are looking for instructions from other people's actions, their past experiences, or some sort
of authority such as a movie theater employee. This very moment while the movie audience is determining
what to do next is when they are most easily influenced. This same rule applies to changes in stock market
conditions and the reaction of wall street analysts and investment news broadcasters.
If you can be the person to suggest a strategy or provide additional credible evidence when others are still
orienting to a new environment you can be very influential very quickly.
Abstract
In a time where each consumer sees thousands of advertisements or corporate symbols every day this article
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discusses several components of the highly researched area of drug addiction and draws parallels use in the
world of sales and networking. The bulk of this article is based on the knowledge and research of Dr. Scott
Lukas, Dr. Robert Cialdini, and Dr. Kevin Hogan who are experts in reward circuitry and the psychology of
influence and persuasion. By examining the way and reasons why we become addicted to substances and
activities we can discover truths about how the reward circuitry in our brain works and create actionable
product positioning and sales steps towards a more profitable business or successful career.
Introduction
Virtually everyone becomes addicted to something at some point in their lives. Many times it is to drugs like
nicotine or caffeine but it can also be to sex or the feelings experienced while shopping with a group of friends.
Our brains are wired to reward positive experiences that benefit us while minimizing those things that create a
negative impact or feelings on our life. This reward center pathology is at the core of what creates patterns of
use that are very reinforcing and sometimes lead to negative health consequences or even death. This is
because the brain can become conditioned into desiring a certain behavior or substance to the point where the
logical points of ceasing the activity are ignored(Kuhn 2003). A good analogy for this is imagining your
unconscious mind is a jet engine strapped to the back of your conscious mind, a minicooper. When your
unconscious mind fires it can be difficult to control the steering, or bring it to a halt. It is not often that experts in
sales and marketing look directly at addiction for clues on how to gain loyal customers. This means that while
most companies profit from our natural reward center pathology, few consciously apply an ethical yet
systematic application of these lessons in an attempt to tap the same reward circuits that creates addiction.
This article discusses four components of addiction; initiating use, the environment, a rapid high after use, and
the employment of cues. The goal is to introduce specific methods that a company as a whole or individual
sales person could use to create an addicting product or service without the use of any drugs. While the use of
these methods brings up several ethical issues, these warrant a lengthy discussion in itself and will not be
discussed in this piece.
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peer pressure or curiosity. The equivalent to this might be the individual who only goes to the gym when
going along with a friend or to see what cardio classes are offered.
Floaters are those who use relatively sparingly and mostly when provided with the drug from someone else. An
example of this could be the individual who only goes to the gym for four weeks out of the year during
the times when his friends can get him the two week free gym trial memberships.
Compulsive Users focus a relatively large percentage of their energy to use of the drug. An example of this is
the individual who enjoys going to the gym 90 minutes everyday. In addition to the workouts this person
might also spend hundreds of dollars and dozens of hours a month on sports supplements and
research on how to increase their gains from working out (Dr. Lukas PSYCE-1410)
The point of describing these three types is that individuals can move between the groups. Whats important to
note however is that most people who become compulsive users cannot easily downgrade and maintain their
drug use at the experimenter or floater level. A parallel can be seen in product purchasing patterns. Sales
people should work towards converting the experimenters and floaters of their product up towards being a
compulsive user. The point is not to convince someone to do something that is unhealthy financially or
physiologically. In the example of the gym members the movement would be from slightly profitable customers
to extremely profitable customers.
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believing in that arena. This is even more heavily relied upon in situations of uncertainty or when the individual
believes that the others being observed are similar to themselves. (Cialdini 2001)
Before you can create an environment to addict someone to your product, you will have to educate them. If
they dont know you exist they cannot seek you out. Camel Cigarettes is an expert at making sure everyone
knows that they exist. In Fischers 1991 study on brand logo recognition his team found that 30% of 3-year-old
and 91.3% of 6-year-old children could match the Joe Camel logo with a picture of a cigarette. Starting a very
young age we are exposed to and remember advertisements. (P.M. Fischer 1991). Do 3 year olds recognize
your logo? Does it matter? The point is imagery is a very powerful way of raising familiarity with a product and
is the most popular reminder or cue (more on this later) that corporations use today.
Environmental Influence
How do most people act in the library? How about at a dance club? A Church? The meek and shy will sing out
in church and the overly extroverted vocal individuals will remain quiet in a library. These are direct effects of
the environment influencing how we act.
The environment an individual is in directly affects the likeliness and extent to which they will buy and use a
drug. There is strong evidence that individuals that have taken a certain dose of a drug in a comfortable
familiar environment later overdosed while taking the same amount of the drug in an unfamiliar environment
(Dr. Lukas PSYCE-1410). This shows how powerful our environment is on influencing our actions. Dr. Kevin
Hogan author of The Science of Influence believes that changing the environment is the single most powerful
way to influence someones behavior.
This has two important applications to accessing profitable reward circuits. The first is that you can increase
some immediate positive impressions or experiences by setting the right environment. In the same way you
can limit any immediate negative perceptions or feelings by being sensitive to what might set some of those
off. The environment can stimulate new behavior and almost instantly changes an individuals actions when
they enter into it. The second important application is that in a new environment the brain is trying to interpret
and adapt so enters into what Hogan refers to as a state of flux and it becomes influenced much easier
(Hogan 2005).
Smoke the competition
Smoking a drug is the quickest way for a user to feel a high. The active ingredients enter the lungs where the
alveoli capillaries absorb the substance and the blood is quickly pumped through the heart and directly to the
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brain. Smoked substances are usually the most addictive because of the rapid onset of positive feelings
experienced after taking a hit.
One of the best pieces of evidence that something will become addicting is when there is an immediate
positive experience following the activity with a delayed or un-associated negative experience. The closer the
positive experience is to the action and the farther away the negative experience is, the more likely the drug is
to become addicting. Dr. Robert Cialdini and Dr. Kevin Hogan have both conducted extensive research on
influencing others by creating a positive initial experience for new customers.
Dr. Robert Cialdini has completed over 30 years of research in the psychology of influence. His most well
known book entitled, Influence: Science and Practice, details 6 tools of influence and was based on decades of
research focused on the logic and mechanics behind influencing others in the business world.
To gain an instant positive first impression Dr. Cialdini prescribes to use the influence tools of Liking and
Reciprocation. Below are descriptions of these tools that directly relate to and work with the immediate positive
experience components of addiction.
Liking: The Friendly Thief
0
People like to buy from other people they know and like. Physical attractiveness, similarity, and
familiarity are three levers that can be employed to increase this liking factor.
This deeply imbedded social rule is what makes one feel obligated to repay someone who has
provided us with a gift, favor, or concession.
Dr. Cialdini does not research reward pathways or the process by which we become addicted to activities or
drugs. His research describes how you can gain a greater ability to influence others or defend yourself against
those who might be using these same tools of influence. This is an important distinction because his advice is
in line with the lessons that can be taken by looking at addiction and the reward pathways that fuel it.
If you follow Dr. Cialdinis advice you successfully give something away that your customer believes is valuable
and come off as very friendly and likeable you would not only create an obligation on their behalf to repay you
with a purchase but you would be triggering their reward center pathways in the same fashion as a drug with a
high potential of being addicting. The quicker and more powerful the early positive experience the more
addictive your product or service becomes. (Cialdini 2001)
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Dr. Kevin Hogan believes we are constantly undergoing 4 second evaluations. Every time somebody sees us
they are evaluating dozens of details about our clothes, body language, hair, facial expression, and
movements to categorize us into a general yes or no category. Do they generally like you and associate with
you or feel that you completely different or possibly someone with different values and morals? You are placing
everyone in buckets of Yes I would like to meet or do business with this person or No, I am not interested.
All of this happens very rapidly and almost completely unconsciously. It is part of how we are wired, relying
upon thousands of mini stereotypes that help us make decisions such as deciding whether to trust a company,
product, or sales person. One some level this is almost required of us so that we can process all of the
information we receive (Bodenhausen, Macrae, & Sherman, 1999, Fiske & Nueberg, 1990), it helps us make
sense of everything without having to start from scratch with each observation (Gigerenzer & Golstein, 1996) In
The Science of Influence Dr. Hogan discusses how your first impression is recorded and used again and again
later in time. Manage your four seconds. (Hogan 2005)
What does your logo, website, customer service reps, store, and product say within 4 seconds of looking at or
talking with them? It has been shown that we automatically assign traits such as talent, kindness, honestly, and
intelligence to attractive individuals (Eagly, Ashmore, Makhijani, & Longo 1991). While I have not found a
specific study on the same effect applying to products I believe that an attractively designed product would
create automatic judgments of the products quality, reliability, value, etc. This is a powerful piece of the puzzle
because all of these judgments occur so rapidly, if you can make them extremely positive you or your product
will be far more attractive. Four seconds happens to be very close to the amount of time it takes for a smoked
substance to enter the blood brain barrier and create a high. If you can get your customer to smoke your
drug(try your product), do you want them to feel nothing, get sick to their stomach, or really high
Bottom line: Create a rapid and powerful positive experience for your customer. Use the rule of reciprocity, be
likeable and friendly, be cognizant of the first 4 seconds, and avoid or delay any negative experiences or
feelings at all costs. Remember, once you have done the legwork to get them to smoke your product
experience you want to make sure that your product creates the most rapid positive experience possible to
create an initial advantage over your competitors.
Cues Reinforcing Use/Purchases
One of the most commercially profitable lessons to take from the world of psychopharmacology is the role that
cues play in the process of addiction and drug use in general. Cues are triggers, reminders of a dug that
makes you think of feelings and experiences associated with a drug. Cues are often what reminds users to
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continue use, immediately seek the drug, or relapse and begin use again. Cues are so powerful that after
months in a drug rehab program a single cue can set someone on edge and induce use. Cues can be odors,
symbolic objects, sounds, or people. Activity in several areas of the brain rapidly change after a cue is
observed. An example of a cue for someone who has quit smoking could be the simple smell of a lit cigarette
being held by someone walking 20 feet ahead of them on the sidewalk. Just the smell triggers activity in their
brain and brings back the old desire and feelings that led them to begin or constantly reinforced smoking in the
first place (PSYCE-1410). Cues are used in the business world all of the time. They are billboards, freshly
baked cinnamon rolls placed on a shelf, or life size Oscar Meyer Weiner waving you towards their hot dog
stand on the corner of the street. These are things that remind us of the positive experiences we associate with
a product.
The following is based on a true story and it provides examples of cues that can be and are commercially
employed.
Imagine a 30 year old woman who used to shop at Macys 3-4 days a week after work or during her lunch
break. It was comfortable, fun, and exciting. For years she continues this use of shopping on a weekly basis
enjoying new purses, shoes, and perfumes. While this was not going to put her into financial ruin, her husband
would like to buy a vacation home and they have been trying to save more money for one. At one point she
successfully reduced her shopping at Macys to one weekend a month when she would go out with her
husband. One day at lunch she eats in a food court and walks past the front of Macys on the way there. She
can smell all of the perfumes and lotions (Cue #1: Smell) that are just inside the open doors. Several areas of
her brain are activated by this cue and she begins thinking about how fun it would be to go shopping for some
new spring clothes. She goes to lunch and all she can think about is how her purse is looking a little out of style
and how she wishes she could buy the same shoes the lady is wearing (Cue #2: Symbolic Object) at the table
next to her. She resists the urge to shop and tries to forget about the whole thing. Two days later she gets a
Macys catalog (Cue #3: Image) in the mail, they have a 40% off sale. That same day she takes a two hour
break from work and heads to Macys. As she searches the racks and tries on each item her brain is being
flooded with dopamine and she remembers exactly why she used to shop 3-4 days a week. She ends up
spending over $1,000 on products she could have done with out.
The golden nugget to take from the use of cues is that through thorough analysis of each type of customer you
serve you can inject daily reminders of the high they experienced or could experience from purchasing your
product. Analyze your business practices and systematically tinker with using cues that other professionals in
your industry have ignored.
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Conclusion
Hundreds of studies have been conducted on influence and persuasion and hundreds more on addiction. Very
few articles or live experiments have looked for a direct connection between these two areas. This article has
detailed four direct ways to learn from the thousands of research studies done on addiction and reward
circuitry in the brain and use it to create loyal customers who cant get enough of your product. These include
Initiating Use, Environmental Influence, Smoking the Competition, and Employing cues. Using these in a
systematic fashion will uncover ethical avenues of creating a more profitable customer base.
References
also www.influenceatwork.com.
Eagly, A.H., Ashmore, R.D., Makhijani, M.G. & Longo, L. C. (1991) What is beaitufl is good but: A
Lukas, Scott E., Psychopharmacology lecture notes, Harvard University. Copyright 2006 Harvard
University.
P.M. Fischer, M. P. Schwartz, J. W. Richards Jr, A. O. Goldstein and T.H. Rojas Brand logo recognition
by children aged 3 to 6 years. Mickey Mouse and Old Joe the Camel JAMA, Dec 1991; 266: 3145
314
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Answer: Great question. I would say 16 - 20 months would be realistic if they keep their heads down, have a
great team and solid investment process. Those are big if's though - it is easy to get distracted or discouraged.
The first fund I marketed took 9 months straight of cold calling, emails and conferences to raise a single dollar
but after 18 months we were raising $1M/week in new assets.
NLP Certification
NeuraProgramming (NLP) Certification
One of my good friends just completed a full certification course on NLP. It included voice
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I have always been very skeptical of the belief in NLP that you can identify the preferred representational
system of an individual by watching their eye movements but my friend is certain that it is accurate over 90% of
the time.
I'm not sure what my thesis is going to be on but maybe it will be based on NLP or some combination of
Chialdini and NLP methods of influence to look into these issues further. It would be fun to get certified in NLP
as part of my thesis project.
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Click here now to see what they offer: Aweber Email Newsletter Services
Note: Certain restrictions apply to email advertisements or newsletters if you are a hedge fund manager or
offer certain types of investment advice, recommendations, etc. Please consult a legal expert or in-house
compliance counsel for advice before starting your email campaign.
Endowment
Endowment
Endowment
(2005)
(2006)
(2007)
billion USD
billion USD
billion USD
Amherst College
$ 1.155[1]
$ 1.337[2]
$ 1.662[3]
$ 1.008[1]
$ 1.059[2]
$ 1.278[3]
Baylor University
$ 1.008[1]
$ 0.870[2]
$ 1.278[3]
Berea College
$ 0.862[1]
$ 0.949[2]
$ 1.102[3]
Boston College
$ 1.270[1]
$ 1.448[2]
$ 1.670[3]
Boston University
$ 0.777[1]
$ 0.916[2]
$ 1.101[3]
Brown University
$ 1.844[1]
$ 2.167[2]
$ 2.781[3]
$ 1.418[1]
$ 1.581[2]
$ 1.860[3]
$ 0.837[1]
$ 0.939[2]
$ 1.116[3]
$ 1.516[1]
$ 1.599[2]
$ 1.841[3]
Columbia University
$ 5.191[1]
$ 5.938[2]
$ 7.150[3]
Cornell University
$ 3.777[1]
$ 4.321[2]
$ 5.425[3]
Institution
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Dartmouth College
$ 2.714[1]
$ 3.092[2]
$ 3.760[3]
Duke University
$ 3.826[1]
$ 4.498[2]
$ 5.910[3]
Emory University
$ 4.376[1]
$ 4.870[2]
$ 5.562[3]
$ 0.823[1]
$ 0.963[2]
$ 1.147[3]
Georgetown University
$ 0.741[1]
$ 0.834[2]
$ 1.059[3]
$ 0.937[1]
$ 1.047[2]
$ 1.281[3]
Grinnell College
$ 1.391[1]
$ 1.472[2]
$ 1.718[3]
Harvard University
$ 25.473[1]
$ 28.916[2]
$ 34.635[3]
$ 1.107[1]
$ 1.276[2]
$ 1.557[3]
$ 2.177[1]
$ 2.351[2]
$ 2.800[3]
Lehigh University
$ 0.845[1]
$ 0.939[2]
$ 1.086[3]
$ 6.712[1]
$ 8.368[2]
$ 9.980[3]
$ 0.906[1]
$ 1.048[2]
$ 1.248[3]
$ 1.548[1]
$ 1.775[2]
$ 2.162[3]
Northwestern University
$ 4.215[1]
$ 5.141[2]
$ 6.503[3]
$ 1.726[1]
$ 1.997[2]
$ 2.338[3]
$ 1.175[1]
$ 1.326[2]
$ 1.590[3]
Pomona College
$ 1.299[1]
$ 1.457[2]
$ 1.761[3]
Princeton University
$ 11.207[1]
$ 13.045[2]
$ 15.787[3]
$ 0.864[1]
$ 0.945[2]
$ 1.109[3]
$ 1.341[1]
$ 1.494[2]
$ 1.787[3]
Rice University
$ 3.611[1]
$ 3.986[2]
$ 4.670[3]
Rockefeller University
$ 1.557[1]
$ 1.772[2]
$ 2.145[3]
Smith College
$ 1.036[1]
$ 1.156[2]
$ 1.361[3]
$ 1.014[1]
$ 1.122 [2]
$ 1.328[3]
Stanford University
$ 12.205[1]
$ 14.085[2]
$ 17.165[3]
Swarthmore College
$ 1.164[1]
$ 1.245[2]
$ 1.441[3]
Syracuse University
$ 0.818[1]
$ 0.908 [2]
$ 1.086[3]
$ 4.964[1]
$ 5.643[2]
$ 6.590[3]
$ 0.942[1]
$ 1.016[2]
$ 1.187[3]
Tufts University
$ 0.845[1]
$ 1.215[2]
$ 1.452[3]
Tulane University
$ 0.780[1]
$ 0.858[2]
$ 1.009[3]
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$ 5.222[1]
$ 5.734[2]
$ 6.439[3]
University of Chicago
$ 4.137[1]
$ 4.867[2]
$ 6.204[3]
University of Cincinnati
$ 1.032[1]
$ 1.101[2]
$ 1.185[3]
University of Delaware
$ 1.077[1]
$ 1.223[2]
$ 1.397[3]
University of Florida
$ 0.836[1]
$ 0.996[2]
$ 1.219[3]
$ 1.148[1]
$ 1.252[2]
$ 1.515[3]
$ 0.955[1]
$ 1.049[2]
$ 1.239[3]
University of Michigan
$ 4.931[1]
$ 5.652[2]
$ 7.090[3]
University of Minnesota
$ 1.969[1]
$ 2.224[2]
$ 2.804[3]
$ 0.849[1]
$ 0.944[2]
$ 1.098[3]
$ 1.042[1]
$ 1.153[2]
$ 1.277[3]
$ 1.486[1]
$ 1.149[2]
$ 2.164[3]
$ 3.650[1]
$ 4.437[2]
$ 5.944[3]
University of Oklahoma
$ 0.777[1]
$ 0.960[2]
$ 1.114[3]
University of Pennsylvania
$ 4.370[1]
$ 5.313[2]
$ 6.635[3]
University of Pittsburgh
$ 1.530[1]
$ 1.803[2]
$ 2.254[3]
University of Richmond
$ 1.208[1]
$ 1.388[2]
$ 1.655[3]
University of Rochester
$ 1.370[1]
$ 1.491[2]
$ 1.726[3]
$ 2.746[1]
$ 3.066[2]
$ 3.715[3]
$ 11.610[1]
$ 13.235[2]
$ 15.614[3]
University of Virginia
$ 3.219[1]
$ 3.618[2]
$ 4.370[3]
University of Washington
$ 1.490[1]
$ 1.794[2]
$ 2.184[3]
$ 1.125[1]
$ 1.426[2]
$ 1.645[3]
Vanderbilt University
$ 2.628[1]
$ 2.946[2]
$ 3.487[3]
$ 0.907[1]
$ 1.042[2]
$ 1.249[3]
$ 4.268[1]
$ 4.684[2]
$ 5.658[3]
Wellesley College
$ 1.276[1]
$ 1.412[2]
$ 1.657[3]
Williams College
$ 1.348[1]
$ 1.462[2]
$ 1.892[3]
Yale University
$ 15.224[1]
$ 18.031[2]
$ 22.530[3]
Yeshiva University
$ 1.149[1]
$ 1.273[2]
$ 1.410[3]
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Bermuda
Brazil
Canada
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China
Denmark
Dubai
European
France
Germany
Hong Kong
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Mexico
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Singapore
Spain
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Vision Capital
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