In today’s unpredictable market, fund managers are trying to navigate through many global challenges that influence their ability to raise capital and optimize their investment strategy. For some emerging managers without a track record, raising capital can be challenging but still can be accomplished.
Swiss Financial Services CEO and founding member of The Vermilions and INCOS, Karl Gysin, sat down with us to discuss his thoughts on how emerging managers can navigate these uncertain times.
Political instability, the global energy crisis, and rising inflation, among other significant social movements, have sent shockwaves through the global financial markets. How has the recent market volatility affected a fund manager's ability to raise capital, particularly first-time managers?
KG: Market volatility is a great environment for alternative fund managers to prove their edge and create value for investors. Active managers who have proven their strategies during difficult market environments will get more attention in the coming months, especially those with a track record. First-time managers may find it more challenging to raise capital, but we see the search for alpha during these demanding times as the great equalizer.
What barriers do you believe exist for first-time fund managers looking to raise capital? Is it essential for a manager to have an anchor investor to have a successful fund launch? KG: Launching a fund without a track record isn't easy. The first investors will likely be people who trust the manager—friends, family, and professional relationships. For those “friends and family” type of investors, the key to keeping their investment will be performance. This is why we recommend keeping the fund structure as cost efficient as possible. Many first-time funds spend too much time and money on complicated structures which might suit potential investors down the road but are not necessary for establishing a track record. Those complicated structures will ultimately create a drag on performance and limit the chances of building a successful business over time. In short, keep the structure as simple as possible and enhance it as the demand from investors warrants.
Would you agree that the service providers fund managers align themselves with have an impact on their ability to raise capital? Does an institutional name make a difference, particularly for emerging managers? KG: We observe that this is the opinion out in the market; big names tick the box and make it easy to raise capital. We see too often that big name service providers discount their fees to be competitive. But if the manager does not grow to a certain AUM level within 12 to 24 months, they will materially increase their fees, often at the worst time in the life cycle for a manager. As I mentioned earlier, what counts in our industry is a strong track record. As a first-time manager, you need service providers who will take a long-term perspective and not raise their fees the moment you have a two-year track record. This will only challenge you to raise additional capital over the next 2 to 3 years. Not many large corporate service providers can offer a long-term view on a client relationship.
Do you have any advice for fund managers who have been managing capital for a small pool of high-net-worth investors and have generated strong returns that are now ready to reach the next level of investors (i.e., family offices, endowments, etc.)? How can they best position themselves and their strategy to get noticed by investors they may not have a relationship with? KG: The most challenging aspect in such a case is to get the word out, and we believe that there are new ways to do that in today's digital world. We co-founded INCOS with the strong belief that small managers can build their brand by sharing their market views in personal, authentic, and short videos, eliminating the need for repetitive storytelling and keeping them focused on running their fund for existing investors. With a clear dissemination strategy, viewer engagement will increase and people will start to follow the manager and ultimately look at how to invest with them. We know this from social media, but unfortunately, in the financial industry, people are still stuck in the old sales process of pushing a product through an existing Rolodex. We think this is a tremendous opportunity for the first-time manager.
Swiss Financial Services global team consults with investment managers on new fund launches and firm expansion. Learn more about the firm’s market entry services here.