Raising Money for Fund Managers
Written by Frank Packard
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Based on our experience with fund managers and our knowledge of investor preferences, we believe the following activities are the best practices that will create the optimal platform for raising capital in Japan.
Marketing Roadshows
Investors in Asia are buying a relationship with the fund manager. It will be essential for the portfolio managers to visit Japan at least two to three times per year. Particularly as Japan reopens its borders to businesspeople after over two years of restrictive border controls, it is important to make the effort to reconnect in person with institutional investors in Japan.
The sales cycle in places like Japan can be quite long, but, for the right fund, the allocations can be of a reasonable size and quite “sticky”, meaning long-lasting.
Before the visits, you should pre-qualify investors based on their past allocations, current strategy preferences, openness to new managers, and available cash resources to make allocations in the near term. After the visits, it is important to follow up with each investor, present investing newsletters, and explain the components of the manager’s strategy, risk management, etc.
Client Contact
Each territory has its own business customs. In Japan, even after the original face-to-face meetings with the fund managers local agents will often need to conduct follow up meetings face to face as well.
Training
Raising money is most successful when the investor-facing team has had ample training in the strategy. You should consider making an investment in at least one intense day of interaction, either in person or in a virtual setting. The program should include time with the portfolio managers, the risk managers and investor relations team about how to best describe the fund, identify key themes, differentiate from similar strategies, and address past issues raised by prospective investors.
Marketing Collateral
The successful fund manager will approach the market with a well-thought out set of marketing materials. Before launching a capital raising campaign, the best managers will have prepared updated documents, including:
- A deck of slides describing the fund strategy, the manager’s experience and background, etc.
- A Due Diligence Questionnaire
- Clear explanations for risk management, operations, liquidity controls, etc.
- References for key personnel
- References at the key service providers
To be sure, a fund manager will only share the most relevant documents in the early meetings. At the same time, for many and diverse reasons, it is extremely valuable to organize all these materials before starting to meet investors. First, the materials need to be thorough and accurate; a mistake in these topics will create doubts about the quality of a fund manager and raise unnecessary obstacles. Take time to do it properly. Second, some investors might move more quickly than expected because a fund manager strategy meets their exact requirements. If you do not have all the documents ready to roll out, then you will lose early success in fund raising. Third, the fund management business can grow faster than expected and pull the leaders in different directions. Growing businesses can have surprising demands to management attention.
The materials reviewed by compliance should make sure there are no promised returns, guaranteed performance, etc. Also, attention needs to be paid to explaining thoroughly the underlying assets and financial instruments, the investment strategy, the risks, and to getting all the disclaimers right.
General Guidelines for Best Practices
Consistency Leads to Success. Consistent performance, reporting, transparency, and human relations are the key factors in raising money. These can be facilitated and enhanced by working with the right on-the-ground team to keep the significant topics of the day in the front of investors’ minds.
Regular Human Relations. The manager will be best served by a consistent marketing person, or team, and well-prepared Due Diligence exercises (data rooms, interviews, etc.) in the head office of the manager. Investors will expect to make a relationship with, as well as an allocation to, a fund manager. Sometimes Americans visiting Japan can have different representatives on different trips. To the extent possible, deploy always the same person to meet investors.
Distributor Licensing. Fund managers should take care to make sure that the representative in Japan has all the proper licenses for each and every activity. For example, in Japan both the company acting as the agent of the overseas fund manager as well as the customer-facing staff in that company need to be licensed by the Japan Financial Services Agency, which in Tokyo acts through the Kanto Local Finance Bureau.
After Sales Support. Investors will require timely and comprehensive reporting. Some investors, especially banks and other institutions subject to Basel II and Basel III, may request position level transparency. Many Japanese institutions will have annual, or even more frequent, travel to meet the manager for regular Due Diligence and portfolio reviews.
