Murano Systems, A Lead Generator
In
one of the coincidences that inspire, recently two aspects of hedge fund
marketing came into view. The first was coming across a small hedge fund using
Murano Systems, and the second was a White Paper on the different types of
hedge fund investors from Merlin Securities.
The Merlin paper (available here) explores how a hedge fund
appeals to different types of investors at the various stages of development
and maturity of the fund and its management company. The advantages and disadvantages of each
investor type are mentioned. The growth
of the hedge fund assets and its changing investor profile is conceptually
illustrated below.
Source: Merlin Securities
Marketing in Different Phases of the Life Cycle
One of the challenges these changes in potential demand give
those running hedge fund management businesses is appropriately resourcing the
marketing effort. The marketing initiatives a start-up needs to take are very
different from the resources and ways of operating of a billion dollar
multi-strategy mature hedge fund. In the
case of the large, relatively mature hedge fund marketing may consist of
relationship management for the most part, with infrequent capital raising in discrete
chunks. To carry out the marketing in
this phase of a hedge fund life may require just one senior big-hitting asset
raiser and a support team of junior graduates.
Contrast this with an emerging hedge fund manager who cannot
afford a big-hitting asset raiser’s base salary to get him or her through the
door, and where the marketing resource may consist of a couple of days a month
of the portfolio manager’s time and the operations person sending out batches
of e-mails. If the nascent hedge fund
manager does not come from a hedge fund background they may not know many
investors in hedge funds at all, nor what they look for or how to identify the
right ones for their style of investing.
A seasoned marketer would know those things, but the regular fee income
of a small fund would not give room in the budget for a marketing professional.
For many, the solution to this chicken-and-egg type conundrum is to use some
form of out-sourcing in marketing. Two common forms are the third party
marketer and lead generators.
In discussion with the marketer at a small start up hedge
fund, Fir Post Capital, that runs a few million dollars and has been going six
months or so as independent entity, the name of a new out-sourced capability in
marketing came up. The fund run by Fir Post Capital is involved in volatility
arbitrage, a somewhat esoteric strategy, even in hedge-fund-land. But the
managers had an investor meeting with an American endowment the following week.
A fund with this profile having a meeting with an American endowment after a
few months of trading is most unusual, so the question came, how come? The
answer was that Fir Post uses a lead generator, Murano Systems.
Changing the Odds in Marketing
In the marketing process lead generators are the next iteration
on from databases of investors in hedge funds. As the European end of the hedge
fund business blossomed 15 years ago lists of investors were likely to come
from the first generation of managers and some of the service providers, and
were passed on to the new managers.
Lists were traded and used by third party marketers then - the
apocryphal “Rolodex and a smile” from Jermyn Street/Dover Street.
Then around 2000-1 a manager might get a spreadsheet with a
hundred names on it from a prime broker’s cap intro team, plus some names from
their mates in broking. And just after that time the first rankings of the
world’s largest funds of funds businesses came out, giving a basic though
un-targeted starting list. Eventually commercial databases and directories came
along. From a broad hedge fund database,
the sub-set of funds of hedge funds could be extracted from Investorforce,
hedgefund.net or Tass. Even now you can
find sellers of directories of investors in hedge funds on the internet.
But both the database and the list are passive, and, in a
crowded marketplace of nearly ten thousand hedge funds, the passive approach to
identifying investors has been succeeded by the lead generators - Murano
Systems, Brighton House Associates and to a degree Preqin.
The argument goes that there are in the region of 40,000
investors in hedge funds in the world, and although cold calling can produce
results in many spheres of commercial activity, the hedge fund business is not
suited to that approach. Many investors in hedge funds can be as remote as the
founders of major hedge fund groups (like King Street) in which they
invest. Rather relationships are seen as
being of particular importance.
Personal contacts are what third party marketers (3PMs)
utilise in their efforts to sell hedge funds, but the lead generators are
critical of the capacity and scope of 3PMs. There are hundreds of 3PMs, but
“two-thirds are no good”, according to an executive at a lead generator. They say that each individual working as a
third party marketer can actively manage only a hundred contacts, everyone else
on their 500 list of contacts is a tired data-point rather than reflecting an
up-to-date active dialogue.
The in-house marketing efforts of an emerging hedge fund may
be limited to part-time human resource and a long list of investor names from a
database. At the emerging manager stage 8/10 funds are using Excel spreadsheet as
a sales organiser, with all the pitfalls that entails. There are several very
good CRMs that mesh with Outlook available that have been specifically designed
for hedge funds. But they cost from upwards of $12,000 per annum, and do not
come with client/potential client data loaded. Recent survey data from Citi
suggests that large hedge funds spend $35,000 a year on a CRM and $150,000 per
year on data for the CRM.
Research suggests that in the hedge fund industry the all-in
cost of acquiring clients is as much as $15-20,000 per account for true
business development. A start-up or small hedge fund cannot compete with an
in-house systematic resource like that, and will have difficulties turning a
list of many unknown potential investors into a hot list of engaged potential
clients. Lead generators are solutions to those two problems.
The Next Iteration in Marketing
A new entrant is Murano Systems, a spin-off of management
consulting firm Perfecta Partners. Ole Rollag CEO of Murano Systems is keen to
describe how they are in the process of changing the business model of hedge
fund marketing. “Using external professional marketers, even a network of 3PMs
in different territories, is a reversion to a hub-and-spoke mode that reflects
a cottage industry approach. We offer an industrial scale way to finding the
right sort of investors for a hedge fund,” he explains. Murano, in common with its competitors, aims
to qualify the client but to a very detailed, fund specific level. That is,
facilitate the fund being put forward to investors who are actively engaged in
trying to find a hedge fund of a particular type and characteristic.
Murano is keen to
differentiate its offering: “We are not a database company,” says CEO Rollag. “Our
core business is identifying investors that are potentially interested the
specific characteristics that our fund clients have on offer. Since we offer a
premium service, we allow our clients to have access to the database that
pertains to their strategy. They may download all of it for use as long as they
respect our restrictions- no bulk emailing or transfer to third parties. We are
akin to a dating or matching service that charges the clients (funds) a
subscription fee. The ultimate goal is to stop disintermediation, bulk
emailing, and annoying the investor with inappropriate funds. If we can
understand the investor and their requirements, then our client can approach a
select number of investors that have specific requirements: we find high quality leads for hedge fund
managers to act on themselves.” Murano reverses the traditional process of
waiting for investors to find managers.
The key human component of the service is the team of
analysts – bright, engaging graduates who through 25 completed calls a day keep
in a regular structured dialogue with investing institutions. So between them
they know what current/prospective demand by strategy is going to be, and who
specifically will have it. The same analysts use the fresh demand information
they have collected, collated and stored to provide sales/marketing leads to
hedge fund managers.
The service typically
delivers 3-5 leads a week to hedge fund managers, though less for an esoteric
strategy. The leads are end investors in
hedge funds that have disclosed to the researchers that they have are active in
looking to allocate to a particular investment strategy, say, convertible bond
arbitrage or long/short equity healthcare. The hedge fund marketer or manager
will receive their leads in a couple of forms – via a
phone call from their account executive at Murano, and in e-form (an e-mail and
update of the managers’ own CRM).
Rollag is keen to emphasise the service focus of the Murano
offering. What is standing data in a
database is refreshed in this approach – so by its nature it is a
constantly-renewed, targeted offering.
In a trial period the potential client will receive the same level of
service as a full client – all the analysts are in the loop for communications
out, leads are sent in the usual way, and the analyst/client dialogue takes
place at least a few times a week. And as such it is subject to service level
reviews – a dialogue with clients on how it is going every quarter or so.
From the hedge fund managers’ perspective the marketing
spend can be both known and a management control variable. It is easier to vary
the budget for a service used than to dynamically manage the human resource
needed in marketing a hedge fund. An in-house or independent marketer gets paid
for capital flows in; in the case of Murano and their competitors the client
pays for the leads rather than the conversion. In concept the service delivers a higher
quality prospect of raising capital with a high degree of management control
and influence, which can be very important for entrepreneurial and demanding
owners like hedge fund managers.
In Part Two there will
be a look at Preqin’s offering – building from a database.
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