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11 Questions to Consider When Fundraising in an Increasingly Complex Environment

By Backstop Author

Fundraising for asset managers is rarely a walk in the park ” but, given present market uncertainties, 40-year high inflation, rising costs, downward pressure on performance fees, and the impact of growing regulations such as the new SEC marketing rule ” it has been more like climbing a vertical cliff.  Whether you are engaged in fundraising for hedge funds or private equity/venture capital, considering eleven important questions can make your ascension easier.  

Current Challenges

First, let’s put today’s market into perspective. Consider first the difficulties faced by hedge funds. Preqin Pro reports that 79% of investors intend to invest less than $50mn (the smallest allocation size) of fresh capital in hedge funds over the next 12 months. This data suggests that allocators are becoming more cautious with their hedge fund allocations.  

Performance, of course, significantly impacts the decision to invest. That being said, Backstop BarclayHedge VP and Head of Research, Ben Crawford, has this advice to offer: “Avoid focusing too singularly on your track record. While performance is an important factor, institutional investors are also evaluating and comparing funds on myriad other considerations, including fee structures, liquidity terms, use of- and limits on fund leverage, the reputation of funds” administrative, custodial, and brokerage partners, typical portfolio exposures, instruments traded, and, perhaps most importantly, the skill with which you present your differentiating value.”

Private equity and venture capital investment organizations are facing similar challenges. Due in part to the so-called denominator effect triggered by the decline in public asset valuations this year, some LPs have chosen to cut back on investing in private fund managers or have elected to free up their capital through secondary sales of fund stakes. The latter decision is often the result of private asset holdings exceeding the allocations allowed under their mandates. Overall, Preqin Pro notes that private equity fundraising dropped 50.5% by value and 57.8% by the number of funds closed in Q2 2022, compared with the same period in 2021.  

11 Questions for Fundraising Asset Managers  

While the fundraising environment is challenging, you can achieve upward momentum in your fundraising efforts. Here are key strategies our clients use to ascend to new heights and eleven questions you can ask yourself to help you make the climb:  

Dig in with a differentiated value proposition. 

Take the time to give your go-to-market value proposition a thorough evaluation considering the current economic environment and your target investor profile.  

1. Is it time to fine-tune your value proposition to differentiate yourself from other alternative managers?
2. Do you have clarity on the type of investors who would gain value from your strategy?
3. Do you subscribe to a database service that collects qualitative and quantitative data points on listed funds?  
4. How effectively are you leveraging your personal network to generate introductions? 

Use the right technology to optimize fundraising efforts. 

To fulfill your capital-raising mandate, you need to be able to gather, view, and analyze pipeline data in real time. Only by doing so can you prioritize opportunities, drive efficiencies, and maximize outcomes.  

5. Do you have a fintech CRM to drive these efforts? 
6. Do you have tools for effective virtual fundraising? 
7. How ready are you for deep-dive due diligence processes, ESG credential reviews, and the like? 
8. Are you reaching far enough for investors? Do you list with a reputable database service (e.g., BarclayHedge to cost-effectively enhance your fund’s discoverability?  

Draw on the core strength of world-class investor relations. 

Greenwich Associates research reveals that 70% of an investor’s perception of an asset manager is performance. The remaining 30% is client service. You want to maximize every minute and every interaction to build trust, deliver outstanding service, and gain a competitive edge. 

9. Do you have a branded investor portal to provide effortless transparency to your investors? 
10. How easy is it for you to provide fund administration data and reporting in the way your investors want?  
11. How are you addressing regulatory requirements or ESG commitments? 

In a highly competitive environment, intangible attributes such as credibility can make the difference between winning an allocation and watching it slip away into the hands of a rival. As you dig in, use the right technology, and draw on your core strength, you can overcome the current challenges and achieve your fundraising goals.  

LEARN MORE: Backstop provides world-class solutions to Investor Relations professionals. Learn how your firm can operate more efficiently by checking out our productivity study with BD and IR professionals in alternative investments. Please call us at (312) 277-7701 or contact us at info@backstopsolutions.com.  

By Backstop Author