11/22/17

Hi there, After lurking for sometime, I figured I'd jump in with an AMA: Anything you want to ask an E&F allocator?

Willing to offer candid thoughts on any and all questions, from the do's and don'ts of getting funded to what life/comp is like on this side of the table.

I have 10+ years in the industry, touching every asset class from global equities to private E&P to drug royalties to macro funds. (And bonds too, but bonds are boring.)

After hundreds of GP meetings, there are a number of factors that separate those who get funded from those who don't...AMA.

Comments (39)

11/9/17

Thanks for the AMA! What's the AUM & track record minimum for your firm to be interested in a meeting?

Hedge Fund Interview Course
11/11/17

Great question and one we get from new and emerging managers fairly frequently. My office doesn't have a specified requirement, and have seeded new managers and participated in first day launches in the past. The key is to show your strategy is clearly differentiated vs. other peer funds when it comes to performance. Additionally, institutional funds typically can't/don't want to be more than 20% of your AUM.

The 'standard' is typically 3 year track record, with top quartile versus peer funds over that same time period. But a strong relationship/network/warm introduction is the most efficient way to get on allocators' radar. For a $1B+ endowment, you'll need around $100M or so in AUM. If you're less, target family offices to build your base AUM, then start talking to E&F, etc.

11/15/17

+1 SB for you.

Much appreciated, and informative.

11/9/17

What can independent traders who come up with a trading algorithm (that produces real returns in real live markets, but with relatively small dollars) do to get into managing real money?

11/9/17

How smart are these guys you meet?

What are they're backgrounds often like?

Any with unique backgrounds?

Which style do you feel comfortable investing in these days?

Any GP's ever get so desperate they offer you things?

Thanks, there's more to come.

Absolute truths don't exist... celebrated opinions do.

11/11/17
kayz08:

How smart are these guys you meet? All over the place, but I've found there are idiots everywhere, Ivy League included

What are they're backgrounds often like? Usually 'top tier' educations (not necessarily an MBA) and a few+ years experience as an analyst at a larger shop.

Any with unique backgrounds? Actually yes, once you get outside of NYC hedge funds there are a lot of interesting people. Unique is often a good thing these days.

Which style do you feel comfortable investing in these days? Our portfolio is structured a little differently in that we have hedge funds in every major asset class. Shoot me a note, and I'll try to better answer.

Any GP's ever get so desperate they offer you things? Usually not at the institutional level, but it sometimes happens. 'Things' are almost always fee breaks, as most of us wouldn't accept gifts.

Thanks, there's more to come.

11/10/17
Hitmybid:

After hundreds of GP meetings, there are a number of factors that separate those who get funded from those who don't...AMA.

do you ever meet with a trader/PM and think "i can't seed/fund this guy myself...but i can refer them to a multi-manager platform like Millennium" and then do so?

11/11/17

Not opposed to seeding trader PMs, depending on the strategy/risk. In a case like what you describe, I would only refer if the PM expressed an interest in working for a fund like Millennium. But yes, I would definitely be willing to intro under the right circumstances.

11/10/17

Have you ever seen anyone with a Fof background move to a hedge fund? Or anyone move from a non-finance background or 'lesser' role (valuations, accounting) move to a hedge fund with good networking?

11/11/17

It depends, do you mean from FoF or non-finance to hedge fund analyst or PM?

11/11/17

Analyst

Hedge Fund Interview Course
11/10/17

What's your background? I always thought FoF/Endowment funds are decent exit opps especially at some larger funds such as Blackstone which recruit actual Hedge fund guys into their FoF business. Did you do something similar before your current position?

11/10/17

What can emerging managers do to get your attention? What's the best way to court asset allocators? How do EMs get in good with consultants to throw them a bone? What's key to operational due diligence at a L/S equity fund? Would love to hear your take. Thanks

11/13/17

Happy to answer, but first: are you @LadyFOHF on twitter?

11/13/17

No, she's a classy UK broad and I'm total us trash

11/19/17

pure honesty ha.

26 Broadway
where's your sense of humor?

11/10/17

What's your experience with placement agents representing GP's and introducing their fund/investment strategy to you and other LP's? I'm talking about placement agents that deal with all sorts of alternative funds from HF to PE to real estate to private credit and even real assets. As someone with lesser pedigree but an interest in sales/relationship management and private markets, I'm super interested in the placement agent business.

We're not lawyers. We're investment bankers. We didn't go to Harvard. We Went to Wharton!

11/10/17

I am very interested to hear this person's view on this too. As someone in a similar position, I am not the biggest fans of placement agents, especially the ones that through 5 funds at you at a time and are then upset when you decline all of them.

11/10/17

what's your job and experience with them?

We're not lawyers. We're investment bankers. We didn't go to Harvard. We Went to Wharton!

11/10/17

I work at a limited partner and look at all kinds of private market investments. As mentioned above, I am not the biggest fans of placement agents. Although to be clear, there are world class placement agent firms that serve a real purpose for the GP. I just don't like the ones that cold call you, act like your their BFF, and throw 5 or 6 funds at you and then want feedback on why you rejected all of them. But meh....maybe Im just a sour human being!

11/11/17

mind if I PM you in a couple days to ask more about your view and experience with them?

We're not lawyers. We're investment bankers. We didn't go to Harvard. We Went to Wharton!

11/13/17

ha! if this is the case, consider me sour as well. There are so many ways to source investments, and frankly, I often get intros to funds from other parties (aside from their placement agents).

If Neil and I responded to every request like this, it would probably be close to its own full time job

11/13/17

My experience with placement agents has been positive overall, but my answer is more nuanced.

From what I've seen, super agents carefully curate their network, offer candid information to both sides, and most understand our side of the business and don't get upset if a meeting doesn't lead to a giant windfall. In terms of visibility for a new fund, using one is one of the quicker ways to become a known entity/brand to allocators.

Placement agents are a great bridge, and there are 2-3 who I will always take their meetings; however, it does not necessarily improve a PM's chances of growing AUM. We have multiple sourcing 'pipelines', as is the case with many allocators, and placement agent-sourced managers generally have a lower batting average in terms of making it into my portfolio. (Though, I can't speak for others, naturally.)

If you want to break in, consider working at cap intro/prime brokerage for a few years to build a solid network. If you already have one, tailor your message to what each allocator is focused on, don't just inundate my inbox with everyone you represent.

(Also, feel free to PM.)

11/13/17

Theres two sides to placement agents: the project management/campaign management team which looks for promising GP's and turns down less promising GP's that want their services, prepares them to hit the road and meet with interested LP's etc. At the junior level (Lazard/CS/UBS private fund groups) its like investment banking without the financial modeling, lots of very important memos etc.

Then there is the distribution/marketers side of the business who are the ones traveling extensively and meeting with LP's to see what their alternative's allowance is, and how their funds can fit into the LP's fund. This distribution side of the business is what I want to do, although the seniority for these roles is minimum senior VP/director age range. I am trying to see how to best position myself to be a distribution banker, and wanted to know when you meet with these guys what their backgrounds look like/what should I be doing to get here in 6 years or so?

transition into institutional sales at a large AM, private banking, FoF marketing?

Also, the general pay scheme in the industry is that the placement agent gets 2% commission from the fund raised. $1 billion fund= $20 million in revenue for a high margin and low capital expenditure type of advisory service, this is why the best and most profitable agents are boutiques (Evercore, PJT, lazard, mvision, etc.). Do the agents you meet with strike you as extremely polished, clean cut, expensive suit, and wealthy type of guys?

thanks for the comments/help @Hitmybid @neil91

We're not lawyers. We're investment bankers. We didn't go to Harvard. We Went to Wharton!

Best Response
11/15/17

I'll chime in as I have a fair bit of experience around placement agents. Its not entirely correct to say that there are two sides to the business: one being project management and the other being distribution. Like any professional services job, your experience changes and becomes more oriented to relationship management as you move up the totem pole. So even if you wanted, there's no way Lazard or UBS will send a 22 year old with a 2 year IB stint to an institutional LP to discuss asset allocation and potential primary funds / secondary transactions. As you mentioned, that part comes later when you move up to the VP / Director stage. At the lower levels, as an Analyst or Associate, you are responsible for primarily working with the GP to put out a focused marketing message - this involves working heavily with the GP on things like their marketing deck, advice on fund terms, how to spin failed deals etc.

At the senior levels, most individuals I see come from an investment banking background or from an institutional sales desk at a major bank. This makes sense because these guys usually have an impressive rolodex that can leverage. At the junior levels, its really a mixed bag. I have seen people with backgrounds in IB, S&T, audit, commercial banking etc.

Your idea on general pay scheme is mostly correct but is more nuanced than that. Remember that a placement agent gets paid only on allocations they bring to the fund. On a $1 billion fund, a good placement agent might bring it, at the top end, ~50% of the capital. The remaining usually comes from the GP's fundraising process. After travel, entertainment and other expenses, the numbers are not as lucrative as you mention (although it still remains a good business). Also keep in mind that the best quality GPs whose funds end up being oversubscribed will never use placement agents (they don't have to). Agents are used when a GP needs help fundraising - so generally speaking, it is a tough job drumming up interest for these funds.

To answer your last question, no, the agents I meet do not happen to look like modern day Patrick Batemans. They are usually jetlagged, slightly out of shape white guys in their 40s and 50s.

11/15/17

This is a good response. I work for one of the placement firms mentioned above, started as an Analyst and now into the mid-level where I am beginning to gain more exposure to the LP side. Not to steal the thread but happy for anyone to inbox me separately specific PA questions; before I started I found there wasn't a lot of information out there, but happy to share anything I've picked up over the years. Most of us do look like Patrick Bateman though....

11/10/17

This is a space that I am VERY interested in and tried to break into while I was at a top MBA program but was unsuccessful. Had to settle for finance at a major tech firm.

Thanks for doing this AMA.

  1. Do you see the industry shrinking due to investors becoming more skeptical of HF and PE investments and turning more to passive? Also, size matters a lot, so it seems like a handful of big players will gobble up AUM.
  2. Which FoF and endowment/foundations do you have the most respect for and why?
12/13/17

Bummed to hear you didn't break in; are you still interested in the industry?

  1. Shrinkage in what sense? I would say it's just changing. On my side of the table the trend is somewhat bar-belled, with organizations choosing to either outsource the entire investment management practice to a third party or creating an internal investment office. There are plenty of institutions who still use a hybrid/consultant approach.

And many of us talk openly about HF and PE concerns, but we're still putting $$ to work. With equity valuations where they are today a (and considering many of manage funds that are theoretically supposed to last in perpetuity), it's hard to justify pure beta exposure in many asset classes, esp when one of the core tenants of my role is to manage risk.

  1. Hewlett Foundation , Soros Fund, and Emory University endowment for the girl power (honorable mention to CalSTERS for the SHE Index thing). Swensen at Yale for penning Pioneering Portfolio Management. Etc.
11/11/17

I guess I'll jump in with the comp question -- what's comp like?

11/11/17

Thanks for doing the AMA. What're your opinions on the more boot-strapped launches versus the well-pedigreed multi-hundred million launches?

11/11/17

Do you use any specialized software to evaluate funds?

11/13/17

Have a lot of questions so thank you in advance for doing this.... tried to throw you as many bananas as I could

1) how do you generally think about how HF's fit into your allocation structure? Is this different from other types of LP's? How will this change going forward?

2) when you are seeding a liquid alts manager (L/S equities specifically): what due diligence do you do on them? please provide as much detail ranging from the mundane (GPA) to the hardcore (hiring a private investigator)

2) For liquid alts - do you grade them in terms of returns or sharpe-ratio maximization?

3) where do you think the real money in hedge funds will be in the future? (asset classes, strategies, multi-manager vs single manager shops)

4) what are the factors you mentioned that separate those who get funded from those who don't?

5) what is an example of someone's "strategy being clearly differentiated"? It seems like that is a bit difficult in equities as there are so many players

6) how do managers get onto your radar? Are they referred from other LP's? Friends in the industry? media? do you ever have PM's at multimanager shops start networking with you in advance?

Again - really appreciate you taking the time to answer this stuff

11/13/17

Have you worked in hedge funds that have places in managed accounts? (From a Wealth management point)
If so, how do you feel about how that has gone and what do you think of it going forward?

11/16/17

what kind of economics do you get when you are successful?
% of assets raised?
% of Performance fee?

11/20/17

How important is track record and/or experience of having actually managed a portfolio vs. overall reputation/ strenght of previous position. Say two people of approximately same lenght of experience:

1) A worked at Lone Pine/ Paulson / Third Point or the like and become a "Managing Director" in charge of a sector, but did not have full discretion or an actually separate track record. Will get strong rec from a famous hedge fund manager, but any investment in the fund will be nominal (i.e. not getting a $200M seed from the old boss)

2) B moved around a few places, but ended up as a portfolio manager at Point72/ Millennium/ Citadel and did well. Track record of managing capital with 100% discretion. Record not officially shareable but you can pretty much confirm its veracity (based on pay statements, etc)

A large segment of the industry seems to be myopically focused on 'track record', but then I see succesful senior analysts from big funds secure decent sized checks to take a shot just as often (if not more) than successful PMs at platforms. Trying to get an idea for how/when/how much being able to say "I called the shots" really matters.

11/21/17

can a research strategist/quant with a backtest, but no actual money being managed get funded as a startup? how does that happen?

12/13/17

It's rare from what I've seen, but I'm sure it happens. We tend to be a skeptical bunch, and there are all sorts of issues with backtests.

My job is to manage risk, so as a start up, I would evaluate your skills as an investor, as well as your skills as a manager of people and business. If you don't have the track record or experience managing a business it's a tough sell, especially given the expense of due diligence and legal reviews.

Other ways to launch include engaging a family office who seeds managers or working for a fund family before spinning out to do your own thing.

12/14/17

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11/22/17
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