DAVID VS GOLIATH PART 2 – AN INVESTMENT CASE FOR THE UNDERDOGS

Written by Steve Knabl

 

An investment case for the Underdogs

In our risk-averse environment, many investors are hesitant to invest in an emerging fund manager. The majority of them have less than three years of experience, and manage funds worth less than USD 100 million. From an investor’s perspective, this apparent lack of experience does little to foster trust. The good news is – past performance is like yesterday’s weather, and replicating a monsoon during a drought is not always guaranteed.

How do you convince an investor that your future performance will be similar to your past successes? 

When an investor analyses the investment opportunity, he surprisingly first asks:

  1. Who are the people in front of me?
  2. How much experience does the fund manager have, how are decisions made?
  3. Who is the individual making the decisions, what kind of assets does he manage and what is his real edge ?
  4. What are my expectations?

Not that the potential investor does not mention the performance until the very end.

How to convince investors ?

  1. Having an audited track record is ideal. What’s even better is the ability to effectively communicate this – the ability to explain your past performance will allay fears and generate investor excitement!
  2. “The Edge” is a perceived phenomenon that must be cultivated and broadcast for success. A proven track record does wonders convincing investors that your edge is sustainable.
  3. Manage volatility through risk management and a robust investment process.
  4. Be sure all legal and disclosure requirements are being met, and that tax implications are being addressed.
  5. Internal checks and balances, as well as third party oversight must be in place.

Yin and Yang of investing in Asia – The Investors Perspective

The decision to invest with a fund manager is driven by two opposing elements – the desire for profit driven by a risk taking attitude, and the fear of losing money by being risk averse. I call that the Ying and the Yang of investing.

In Asia, just like everywhere else in the world, attracting investors seems like a daunting task. But it doesn’t have to be. Honesty, experience, and integrity goes a long way towards establishing the trust necessary to attract investors. Producing tangible results and putting the needs of your client first will insure success and profitability.

Most of all, establishing trust is important. For example, lying through omission, is a deal breaker. Arrogance and pushiness will quickly build a wall between you and any investor, which must be avoided at all costs. Any conflicts of interests must be immediately dealt with, and you must be transparent about your decision making process.

From the investors’ perspective, finding the right people is key. Age and experience are important, but so is that good old gut feeling.

David vs Goliath in the World of Fund Managers

Experience is both a blessing and a curse. An established fund manager is accustomed to making big decisions, and usually has a track record and reputation to be envied. The negative to this very same manager is that they also have a larger infrastructure to work with and cannot make decisions as freely as they once did when they were emerging – this is a lack of agility.

Often, an emerging fund manager is easier to work with and more eager to produce. In many cases, opportunities are capitalised upon faster than most established fund managers. An emerging fund manager is also more accessible, and able to work with customers more closely. There is a lot to be said for agility and being able to make decisions quickly and implement them with minimum fuss. In my opinion, this is a large part of the alpha generation factor that differentiates successful emerging managers.

Embracing 21st Century Marketing

At Swiss-Asia, we understand it is difficult for emerging fund managers to have it all and put together a perfect team to achieve what the Big Guys have. So we’ve created an incubation platform to specifically help fund managers overcome all the challenges with a dedicated team of middle and back office professionals to get you ready for battle. Once you are ready, then come the Capital Introduction events.  Swiss-Asia has decided to take it into their own hands to organise the CapIntro events to fill a gap that nobody dares to fill. See https://www.swissasia-group.com/cap-intro/

Most of the Capital Introduction events that are organised by the mainstream Prime Brokers are geared for the “Big Guys” and emerging managers get near-to-no attention – if any.  We take a meritocracy approach – if your performance is good then it should be known and shown to all !

I am also of the opinion that the days of building brands through secrecy and opaque private placement modes are over.  It is undeniable that branding, social media, and online promoting will take up-and-coming hedge funds closer and closer Big Guys.

It’s the 21st Century of marketing techniques and Swiss-Asia is committed to being one of the pioneers in this space.

 

Steve Knabl

www.swissasia-group.com