Monkey,
I understand that PE firms go out market for fundraising every 3 or 4 years. As I am thinking to turn to hedge fund sale side, I would like to know how hedge fund firms do their fundraising? That would be rolling closing? And the placement agent / IR need to continue the fundraising mode till the hedge fund does not accept subscription? Please help. Thanks.
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How do hedge funds raise large amounts of capital (Originally Posted: 08/21/2014)
Does anyone know how large hedge funds raises 100M+ or billions in capital? I would assume there are intermediaries involved that creates offering documents and sources institutional investors or HNW inividuals.
Anyone know the names of these intermediaries and what its like to work for one?
uhh Fund of Funds?
There's a lot of different ways. Sometimes it's the founders own capital. Look at how much money of SAC is Steve Cohen's. If you have the connections you can get the people to throw money your way. You can get money from fund of funds.
Fund of Funds is one.
A HF's Prime Broker (where they keep their $, processing, back office) often has a Cap Intro team that works in the same way. For example, I worked at a fund whose Prime was Goldman Sachs. Their Cap Intro team would look at performance across their HF clients and introduce them to institutions / PWM clients who were looking to make investments in alternatives.
There are more than FoF when it comes to raising capital for HF.
FoF has been declining for a half a decade and continues to experience capital outflow. On the other hand, AUM of hedge fund industry is at all time high, from 2.1 in 2007 to 1.8 T in 2009 to 2.6 T in 2013.
I read that BBs like GS and MS do pitch in to place capital for hedge funds. Just wondering there are more to the process. its hard to believe Gabriel Plotkins can just leave SAC Capital and casually call a few people to raise $1 billion...
Why does it have to be external intermediaries, necessarily? HFs employ marketing/sales professionals whose job it is to raise capital from institutional investors, etc.
Hedge funds also raise money through firms/individuals called placements agents. A placement agent usually has a rolodex of HNW and Institutions (pensions and endowments) that they advise on what funds to use.
Pretty much all of the above are correct. Guys who leave established funds and raise a lot out of the gate typically get money from their former employers. I thought I read Plotkins got a good chunk from Cohen and there's also all of the Tiger Cubs as examples. BB's used to do it when their star traders left but since all of the new regs I haven't seen it. There are also seeder funds who allocate some decent dollar amount and receive a good amount of the economics of the new fund.
A guy like Plotkins can't "casually" pick up the phone and ask for $1B but he can raise it off of his reputation and track record but I'm sure he's using an advisor/placement agent to run the show.
They call people like me.
The op is asking about the actual investment capital, where a fund of funds is just an investment strategy.
A fund of funds is a fund that takes the investment capital and essentially manages it by investing in different funds.
The money (aka the AUM which I think op is referring to) is usually as stated raised through the placement agents, until the firm is known.
Some firms can just announce they're opening a new fund and people will join in. Banks also get involved with the big clients funds where they front them the money until their fund is fully subscribed.
placement agents and investor relations team. Most funds have a steady inflow of money through those efforts and are growing their AUM like that. Then they raise specific funds with a target and use the same sources to do that - lots of money comes from existing investors in any case
we regularly get visited by FoF wholesalers, not as regularly as mutual fund guys, but it's becoming more common. the ones that go through the DD process at banks actively market the bigger teams. one caveat, we rarely see the underlying PMs or their staff, usually it's the FoF people. they do a good job of keeping us informed without pestering us, and as long as the performance is good, we keep adding money (did tickets with 2 of our FoF just this week).
in the hedge fund world it's really called "third party marketing." placement agents are more on the PE side. Third party marketers vary in services offered, but at their core they are providing cap intro to their "trusted network" of potential limited partners for a select group of hedge fund managers. They usually take 20% of fees, off the top, on all capital raised via those connections (I'm a couple years removed from these guys so correct me if the fee structure has changed). These firms vary from individuals with a broker license hanging somewhere (fyi you need to be licensed), to more established firms providing multiple services (branding, marketing, etc).
I have no idea what it's like to work for these guys but my base case is that it's just an unbeleivably brutal hustle. The more established funds have direct access to LPs. The smaller funds are unmarketable. So you have like a goldilocks area (probably $50m aum on the low end, up to maybe $500m) where there's any chance of something getting done. I imagine it's a lot like being a business broker, where it's feast or famine, and mostly just famine.
How long of a track record do you usually need for rasing money? For instance, 5 years experience as PM/trader...?
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