How Do Hedge Funds Get Clients & Win Sovereign Wealth Fund Mandates

Hedge funds can get clients and capital through a variety of methods, including:

  1. Networking and referrals: friends, family, colleagues, business partners, classmates, current and former clients
  2. Leveraging capital introduction services (prime brokerages like BTIG, Pershing, and Fidelity offer such services)
  3. Establishing a solid investment track record
  4. Charging appropriate fees relative to your track record
  5. Making a good pitch in articulating your investment strategy

    - If you plan to outsource any functions, let the investors know.
  6. Hedge fund marketing

    - Making public appearances (TV, podcasts,
    - Being quoted in articles and publications
    - Writing articles, books, or blogs
    - Making use of public relations/press releases
    - Hosting webinars
    - Speaking at hedge fund investment conferences
    - Leveraging social media, posting videos and posting regularly
    - Paid ads (Google, LinkedIn, financial publications)

Of course, hedge funds' success will have a lot to do with these existing factors:

  1. Brand name recognition
  2. Notable fund managing partners
  3. The firm size
  4. Budgets - how much is the firm willing to spend getting its name out there?
  5. Number of years the hedge fund has been in operation
  6. Past performance and known success stories

Hedge Funds Getting Clients, Specifically by Winning a Sovereign Wealth Fund Mandate

When it comes to a particular kind of investor, the Sovereign Wealth Fund (SWF), getting their business will require extra effort.

Remember, SWFs are entrusted with public resources; they must do their due diligence in selecting a hedge fund.

When attracting a Sovereign Wealth Fund, here are some things hedge funds should do:

1. Promote Transparency

While not entirely fair or accurate, hedge funds historically have been associated with a lack of transparency, in part due to fewer regulations placed on them.

Indeed there are many fine and reputable fund managers, but it is up to the hedge fund to prove their worthiness.

If they are registered with the SEC or are audited by third-party regulators, hedge funds should emphasize those points.

They should also produce risk factor statements and accessible data, so that SWFs know best how to manage risk and asset allocation.

2. Highlight Hedge Fund Credentials

Hedge funds that are older, larger, and have a track record to point to will do well in this space.

As these type of hedge fund mature and 'institutionalize', they have a better chance of winning a Sovereign Wealth Fund mandates.

As part of this maturing and stabilizing process, the firm has to show that it's bigger than one individual rock star fund manager. It must show it can launch and run multiple successful funds with a talented team of fund managers.

3. Cater to SWF Requirements

Sovereign Wealth Funds want some degree of control. After all, they manage public funds.

Offering Separately Managed Accounts (SMAs) is one way to attract them. SMAs gives the investors more flexibility in how they determine strategy, as well as allocate assets and manage risk.

Environment, social, and governance (ESG) standards also guide the investors in their decision-making. SMAs give the investors control and the opportunity to meet their own ESG requirements.

4. Adjust Fee Structures to Match Investors' Present-Day Expectations

The 2-and-20 model is increasingly a thing of the past. Nowadays, investors expect 1% or lower depending on the asset classes.

They are more inclined to reward the fund manager for good performance rather than simply managing the assets.

5. Manage Sovereign Wealth Fund Data

As part of catering to SWF requirements, data management is an important component.

Hedge funds can satisfy all the above components, but if the data and reports they produce don't match SWF guidelines, they can lose out on winning a mandate.

The Sovereign Wealth Fund may require the data to be formatted and organized in a certain way, but meeting those requirements can be really hard, especially on short notice.

In those cases, you can partner with a hedge fund outsourcing provider like Empaxis, which has experience in such data transformation.

How Empaxis Got a Hedge Fund to Win a $250 Million Mandate

A multi-billion-dollar hedge fund in Seattle needed data from their trading and accounting system organized in a precise specification for a large sovereign wealth

The challenge was that the information was spread across multiple systems, and the hedge fund did not have the requisite experience to transform, consolidate, and
normalize the data into a usable format.

The hedge fund was already using Empaxis for its middle-office outsourcing solutions and data management, and they felt confident that Empaxis could deliver on its proposed solution.

Leveraging Empaxis’ development, Empaxis extracted the data in various formats and normalized the data to the specifications of the sovereign wealth fund in a short period of time.

As a result of expedited turnaround times and better organization of the data, the hedge fund was able to win a $250 million mandate.

Get New Clients for Your Hedge Fund

As for the question of how do hedge funds get clients, there are different approaches to take. There isn't one single approach, so multiple strategies should be employed simultaneously and consistently.

Success will depend on a variety of factors, including how long the firm has been around, how big it is, and how successful it is.

If you're looking looking to win a Sovereign Wealth Fund mandate, they have additional requirements. From a data management standpoint, Empaxis can handle those requirements for you.

If you'd like to learn more about how Empaxis takes ownership of hedge fund middle-office and back-office needs, feel free to reach out.

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