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Comment: Family Offices, Fund Boutiques, Asset Managers: Seed Money and Drilling Thick Boards

“Little by little, the bird builds its nest.” The expression probably reflects an experience all too familiar to many asset managers and other fund initiators when it comes to collecting seed money.

Knocking on people’s doors in connection with a possibly high rejection quota seems part of the business. Similar to the areas of project financing or venture capital, this “uphill grind” appears mandatory, regardless of whether it deals with open or closed funds. Clients (family offices, banks, etc.) often find it difficult to recognize the direct use that is largely a result of the efforts involved. Markets are satiated and talented fund managers exist only in finite numbers. Newcomers have a difficult time and well-established firms frequently require great measures to buy investors’ interests in particular product concepts. Happy are those fund initiators who have done their homework—others must travel rough roads. Failure and high costs are not excluded.

Product development—does one often put the cart before the horse?
Investment companies such as Universal-Investment, IPConcept, or Axxion are typically a first point of contact for fund initiators in the area of open public investment funds. These usually offer great sites of know-how in terms of product conception. But the German Association of Independent Asset Managers (VuV) is also a good, first point of contact. Investment companies execute product checks prior. Here as well, salt is put in the wound: Is there one or more initial investor for the fund proposal? The product idea seems often primarily driven by the excitement of fund initiators over new income possibilities. Consciously or subconsciously, investors’ interest appears to take second place. This reality often catches up to asset managers and fund initiators of closed fund areas during road show events for seed money search. Not only is the fund industry dominated by this mechanism of product development, but products and thus also fund products are typically sold rather than bought. Institutional investors and retail investors aren’t easily fooled in the short or long run: current discussion on the quality of certain absolute-return approaches or the strong growing number of “fund duds” (keyword: flat rate withholding tax conjunction) emphasis this situation.

Asset managers: Focusing on core competencies
Experience in seed-money search shows that slowing project or projects that last a long time have some points that certainly warrant a closer look: Were investors involved in conception? Does one even have added value for investors in this context? An asset manager can offer excellent services for private clients and still be considered a mediocre fund manager. The total package counts. Private banking units of some well-established firms showcase it—whatever the client perceives as useful counts. Should the same asset manager show interest in income possibilities in the field of institutional investment and express the desire to enter the fund initiation adventure world, unpleasant experiences in terms of increasing frustration tolerance level and the ongoing facing of project management stumbling blocks are seemingly preprogrammed. The sheer number of fund projects with funds that hardly any investor finds appealing or whose concepts are deemed interchangeable document this odyssey. The grass isn’t always greener on the other side of the fence!

Impatience, opportunism, “tinkering around”: Belief in magical contacts
Fund ideas typically mature slowly; all too often, they are brought into the world too quickly. One current trend (flat rate withholding tax, UCITS-Umbrella, sustainability, etc.) is identified—“We can do this too.”—and immediate action taken. Seed investors must be found. What does this look like in practice? Just like what happens in regular sale circumstances, one addresses personal contacts first. Acquaintances, family members, or friends are next, and they in turn address additional friends and associates. Next, a time of disillusion sets in and a phase of opportunistic lookout for potential investors begins. Consultants are contacted; if these are respectable, they characteristically point out that fund initiators are “beating a dead horse.” Nobody likes to hear this, and it obviously hurts one’s pride. Isn’t there a magical man somewhere in this industry who has all desired contacts and can immediately fill the fund’s volume on the basis of an excellent network?

Doing your homework is half the rent—patience, budget, and fortune
Experiences based on successful seed processes show that many factors work hand in hand. Possible hygiene factors are management expertise, infrastructure, and network. Much more important is the timely development of new networks in terms of subscription period; ideally, this should have happened to the start of the fund project. Nothing vanishes faster than a seed money confirmation before the end of the subscription period; having a plan B ready is certainly an advantage. As it happens in life, “hot” projects often get “caught on the fence” and lose steam. Projects that are deemed successful are typically characterized by a realistic timetable in combination with a well-thought out, creative multiplier or networking strategy. How do I identify investors in a given time period who appreciate the conceptualized project and are willing to invest? Successful seeding candidates practice one virtue uncompromisingly: systemization in combination with the art of drilling thick boards!


Source: www.institutional-investment.de
Photo: www.pixabay.de

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