“Like anything else in life, when you are raising money for your fund, it’s very much about you as a person,” said Leigh Drogen, the co-founder and CEO of Estimize. “People give money to people they trust. They don’t give money to statistics or returns or strategies — they give money to people, so personal connections and trust are everything.”

Drogen knows a bit about raising capital. Before starting Estimize, he founded Surfview Capital, a New York-based investment management firm, and served as the company’s CIO.

“The best way to raise money is to get personally introduced to people from people who trust you,” Drogen advised. “This is what allowed [Bernie] Madoff to garner all that capital for so long without telling anyone how he was supposedly making returns, which is a horrible thing.”

But there is a silver lining to this situation. “It is also how someone with little history or track record can get started and be successful,” said Drogen. “You have to start from somewhere, and the people likely to give you your first shot are the people who trust you.”

If you are just starting out, Drogen recommends that aspiring entrepreneurs ask themselves the following questions:

(1) “Have you worked in the industry you are attempting to build a startup in? In finance, it is specifically important to have worked in finance before, just because of the lexicon and you really have to know the landscape. You can’t just jump into it like people jump into building a local social mobile app. It’s completely different.”

(2) “Have you worked at a startup before at all? You need to have that experience before you start your own business. There are so many mistakes that you’ll make if you haven’t had that experience before. It’s like trying to go to the moon without ever being in a simulator. You just don’t want to do it.”

(3) “Do you have a co-founder who has either of those qualities as well? That is extremely important. You cannot do this on your own. You need that co-founder there, whether you’re the technical guy and he’s the business guy or vice versa, it is just absolutely necessary.”

Drogen said that based on base rate statistics of failure and success in people building startups, those are the most important things to consider. “I don’t even tell them if I think their idea is good or not,” he said. “A lot of the time that isn’t what matters. Who am I to say that their idea is good or not? Who is anybody?”

This content originally appeared on StreetID, a financial career networking, matchmaking and news site. To learn more about StreetID, visit StreetID.com. StreetID’s financial career news can be found on its blog, streetid.com/newsblog/.

The Senate Agriculture Committee gets an update from regulators on two probes under way into scandals at futures trading firms MF Global and Peregrine Financial Group. (more…)

The world is flat. This adage rings true within the hedge fund industry, as hedge fund managers face a difficult capital raising environment and are seeking access to a wider global investor base. With these challenges in mind, an increasing number of managers are taking stock of how they fit in with the global expectations of their investors. This article will provide a road map to such managers, examining the various fund structuring, product options and distribution methods available to U.S. fund managers seeking greater access to the global market.

Product Options

U.S. fund managers looking to attract European investors, who represent a significant amount of investor assets, should understand that these investors typically prefer to invest in European regulated products. The preference for European regulated products is partly based on the perception that the addition of a custodian/depository coupled with the increased regulatory oversight may decrease the risk of a substantial fraud or even negate the effects should one arise.

Of course, being able to provide these benefits to investors preferring a European product means that managers will be exposed to new challenges such as increased compliance, monitoring and reporting, which add to costs in an age where management fees are being challenged and cost management is a priority focus. Admittedly, potential increased reporting to a second or third regulator coupled with increased costs can be off-putting when considering global distribution.

But the current global landscape and expectations indicate that managers looking to grow their assets under management need to transverse a number of regulators and consider different products to attract a global investor’s base. If done well, costs can be managed and profits realized.

UCITS

The Undertaking for Collective Investments in Transferable Securities (UCITS) offers distributable product across the E.U. Initially, the UCITS structure was developed and envisaged as a mutual fund directive; however it has been adopted by hedge fund managers because it provides investors a recognizable mark of quality that the market needed post 2008. The success of the product is illustrated by many statistics, including the fact that 70% of funds publically distributed in Asia are UCITS and the growth of combined UCITS assets under management (AUM).

So what’s the potential downside? First, many hedge fund managers have found that their strategy does not fit within the UCITS framework or needs significant alternation to meet the portfolio guidelines, liquidity terms and significant upfront costs to name a few. Where a strategy does fit, the UCITS brand is worth considering due to recognized brand/quality market perception.

AIFMDs

Where a strategy does not fit, hedge fund managers may now be able to fully replicate their strategies in a dedicated hedge fund product under the Alternative Investment Fund Manager Directive (AIFMD). AIFMD was developed as the hedge fund equivalent of the UCITS and provides a strong alternative where a UCITS does not meet the objectives and needs.

QIFs and SIFs

These alternative funds are overseen by the same regulatory framework as UCITS. The Qualifying Investor Fund (QIF) is regulated by the Irish Financial Regulator and the Specialised Investor Fund (SIF) by the CSSF in Luxembourg. Increasingly, the majority of hedge fund managers are launching alternative funds under the QIF and SIF brands than under UCITS. We expect this trend to continue since funds established under the European directive meet the requirements of and are overseen by local regulators while giving managers a lower cost option that restricts their strategy less.

Distribution Options

By allying a European fund with the existing Cayman Master Feeder structure, a manager can create a suite of products that attract U.S. onshore, U.S. tax exempt, European, Asian, Latin American and Australian investors.

While structures can evolve in any number of ways, here are two basic options:

The first model assumes that most U.S.-based managers have U.S. limited partnerships which are utilized due to their tax advantages for U.S. taxable investors.

For a significant percentage of alternative managers in the U.S., the addition of a Cayman fund facilitated access for U.S. tax exempt investors, institutional investors as well as European High Net Worth Individuals (HNWI’s).

As such, managers who can replicate (marginally amended or otherwise) their strategy in a UCITS fund will help gain access to European pension plans, institutions and Asian investors that may otherwise be inaccessible.

For the alternative managers that are unable to access the European, Asian and Latin American investors yet whose strategies do not fit into a UCITS, the implementation of AIFMD creates a great alternate through the QIF or SIF, which are being referred to as the ‘Alternative UCITS’.

When AIFMD is fully implemented, non European managers will be prohibited from marketing their offshore product to European investors.

While the world is flat, capital raising doesn’t have to be limited to one jurisdiction as a result of not having the right structure or products. In light of the pending restrictions on non-European based investment managers under AIFMD, it’s important to be aware of European products, capital raising opportunities and limitations with European and other international investors.

Derek Delaney is Managing Director of DMS Offshore Investment Services (Europe) Limited and Global Head of Business Development for dms Fund Governance Ltd. He can be reached at ddelaney@dmsoffshore.com.

I am a business owner, a competitive athlete, and a contributing member of society. I’ve owned my marketing firm for over 10 years, been playing and competing in sports my entire life, and have been a taxpayer and volunteer for decades. Having spent a considerable amount of time at these endeavors, I feel qualified to share some observations about these separate ventures in making a positive impact on others, including how it pertains to the investment management industry.

A leader naturally wants to be first: to finish ahead of the competition, to define the farthest reaches of the current landscape, and to bring followers along for the ride to a better place. It’s occupied by the record breakers in sports, the entrepreneurs in business, and the innovators in society. It is also incumbent upon the striver to achieve success within the context of fairness—to win by achievement, rather than duplicity. With that context in mind, I’d like to offer a few key points about making an impact which I believe are constructive to those of us who serve the investment community, whether that be through direct or indirect participation in wealth management and investment performance.

Being a Good Sport—Sportsmanship relates to the overall balance between being competitive and being fair. It means knowing the rules, playing within the boundaries, but pushing the envelope. As the world looks forward to the 2012 Olympics in London this month, amid all the challenges and trials of our geopolitical economic situation, it’s one of the primary reasons why society applauds the efforts and strivings of individuals from all stages of life when they come together to compete amidst a spirit of common goals and a great desire to be the first, the best, the only.

It is human nature to want to win, but equally important to do so within a context of defined and accepted rules—to be recognized as a success for besting the rest through a predetermined framework. It’s the reason why millions will tune into the sporting competitions—track and field, soccer, swimming, equestrian, whatever—to watch individuals execute their skill to the best of their abilities against the best in the world at the discipline, and to root unabashedly for their favorites. People want to associate with a winner whether or not they personally participate in a specific activity. Fans are fans regardless of race, language, economic position, or age. Everyone loves a winner.

Being a Success in Business—This too requires a communal buy-in as it pertains to the value of your economic output. Do you provide a service that is wanted? Do you produce a product that others value in great measure? Are you creating a new dimension or contribution to the current business landscape that adds to the overall offerings desired by the majority? In the world of investment management, these perceptions count for as much as actual performance, even, at times, more.

Investors want to ally themselves with a winner—someone who bests the competition, but who also represents the highest levels of integrity and aligned interests with the community at large. A winner by deceit or subterfuge is a pale substitute for the winner who outshines the rest through widely accepted terms: performance measurements, risk management, exceptional service, and accessibility. Building a reputation for success in business can be likened to good sportsmanship in many ways. Knowing the rules, playing within the boundaries, but pushing the envelope all work equally well in the world of investment management as in sports. And, not surprisingly, investors consistently show their love for a winner.

Being a Good Citizen—It’s not enough to be good at what you do or offer. You should want to be respected as an individual or a company as well. In traditional marketing parlance, this is referred to as ‘good will,’ and indeed, such a quality is even awarded a specific value on the balance sheet when evaluating a company’s assets and liabilities.

Good will, or perception/reputation/value-add, is an important commodity in the definition of success. It can help you build on current positive momentum in your business, and it can help you ride out a nasty period of underperformance or personal scandal in your overall contributions to your sphere of influence. Conduct yourself and your business with the highest standards, and make it a point to be a positive influence where you can, and you will create a cushion of good will that can help you bolster your business performance over the long run.

Another aspect of being a good citizen filters down to your individual conduct as well. Be a good boss—mentor your subordinates and colleagues, encourage others to follow suit, and reward efforts that contribute to this behavior. Devote some personal time to causes that are meaningful to you. Focus on your immediate family and friends, participate in community and national causes that resonate with your values, and find ways to matter outside of business. Being a good citizen reinforces your ties to the community at large and creates a stronger bond between you and those you impact on a personal and professional basis. In short, it increases your personal accountability channels, which helps fuel your drive to succeed.

So as the world settles in to watch the 2012 Olympic games this month in London, observe the individuals and teams who labor to achieve excellence, and how the various competitions provide some lessons on how to be a winner in business as well. It’s not just the results that count, but how the game was played that resonates with people long after the scores are tallied.

Diane Harrison is principal and owner of Panegyric Marketing, a marketing communications firm founded in 2002 and specializing in a wide range of strategy and writing services within the alternative assets sector. She has over 20 years’ of expertise in hedge fund marketing, investor relations, sales collateral, and a variety of thought leadership deliverables. A published author and speaker, Ms. Harrison’s work has appeared in many industry publications, both in print and on-line. Contact: dharrison@panegyricmarketing.com or visit www.panegyricmarketing.com.

HedgeWorld is now taking applications for entry into our manager showcase at HedgeWorld New York 2012. If you’d like to present in front of a room of investors, please contact Greg Winterton at gwinterton@hedgeworld.com for more information.

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By Mark Shore
CBOE Futures Exchange “Futures In Volatility” Newsletter
May 31,  2012

Many investors are familiar with the CBOE Volatility Index (VIX) that is calculated based on options on the S&P 500 Index option and is an indicator of implied volatility and investor sentiment. But some may not be aware that CBOE Futures Exchange (CFE) lists and trades the VIX futures contract (Ticker symbol: VX).

The popularity of the VX futures contract has grown and the VX futures contract recently experienced its highest trading volume month in March 2012 with 1.96 million contracts traded, which is an 84% increase from a year earlier.

As the popularity of the VX futures contract increases, CFE continues to expand the volatility index franchise to include futures and security futures contracts covering several underlying markets. See the table below for a list of the volatility index futures and security futures that CFE currently offers for trading on its market.

From the retail investor to the institutional investor or money manager such as a Commodity Trading Advisor or hedge fund, there is always the question: “How can an investor utilize these contracts in a portfolio?”

Read more

Copyright ©2012 Mark Shore. Contact the author for permission for republication at info@shorecapmgmt.com Mark Shore has more than 20 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com

Mark Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business in Chicago where he teaches a managed futures / global macro course and an Adjunct at the New York Institute of Finance. Mark is a contributing writer to Reuters HedgeWorld and the CBOE Futures Exchange.

Past performance is not necessarily indicative of future results.  There is risk of loss when investing in futures and options.  Always review a complete CTA disclosure document before investing in any Managed Futures program.  Managed futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone.  The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.

One of the hardest things to achieve is to be groundbreaking. Yet groundbreaking is what it takes to succeed today in the hedge fund industry. The competition is so fierce for both money and investment resources that only an exceptional few have a legitimate chance of making the leap from supporting cast member to headliner.

There are new rules in formation not only as regards the regulatory landscape, which will affect most hedge funds and investors, but also concerning operational issues, which will impact corporate governance of funds both large and small. Reflecting on perspectives from the past leads to some notable observations about the future of the hedge fund industry’s business development.

“No man is an island, entire of itself; every man is a piece of the continent, a part of the main.” —John Donne

Being an investment star is not enough in itself. Today’s investors demand a complete organization to ensure that they aren’t signing on with a star whose light might diminish and leave them in the dark, so to speak. It takes a concerted effort and a cast of excellence to create the next generation of hedge fund talent. In short, it takes a village to elevate a unique idea to an established presence.

“The mass of men lead quiet lives of desperation.” —Henry David Thoreau

Replace the word “men” in the quote above with “hedge funds” and you will be closer to the truth in today’s alternative environment. Most of the 8,000 or so hedge funds in existence today are in some stage of desperation—either from an inability to raise capital, achieve stated performance goals, or afford the level of talent necessary to propel the business to the next level.

Accepting that a collaborative effort is required to succeed represents a shift from the traditional perspective of singular stars rising through the ranks of the hedge fund world on the strength of investment results. No one will argue against the merits of performance excellence being a top consideration for success, but the pendulum on weighting performance versus sustainable business practices has swung far in the opposite direction.

With a choice between two fund options: one with 15% annual returns, a jerry-rigged infrastructure, and spotty investor relations versus a second with 10% annual returns, a robust operational structure, and regular, meaningful investor communications, an institutional investor will tend to the latter in seeking a long-term partnership with success.

“No one can whistle a symphony. It takes a whole orchestra to play it.” —H.E. Luccock

In reviewing the basics of breaking through from concept to company, let’s begin with the spark. Hedge fund managers express themselves through market mastery. Much like a painter, an elite athlete, or a concert violinist, the market master expresses artistry within his chosen medium of the investment space. The genesis of every successful fund is this creative push. If there’s not something new to bring to the party, why attend at all?

If a manager is indeed successful in identifying this spark, he must then be iconoclastic to achieve this breakthrough approach. Not only must there be a verifiable uniqueness to the fledging strategy, but it must be able to have its sustainable investment brilliance be cultivated.

“It is the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed.” —Charles Darwin

The idea generation and trade execution of the approach must be robust, showing true legs in terms of future market opportunities beyond the current market situation, whether in single-sector, multi-sector, or some other segment. It also must be able to be articulated to the investor community in order to attract attention to its potential for growth.

A new fund must showcase an investment approach that has the ability to become distinct, occupying a unique space in the investment field. This is deceptively simple to state, but extremely difficult to establish.

“Teamwork is the ability to work together toward a common vision. The ability to direct individual accomplishments toward organizational objectives. It is the fuel that allows common people to attain uncommon results.” —Andrew Carnegie

Next, there must be a nurturing process to encourage the patronage and development of this new approach. Seeders, early-stage investors, strategic service providers, and core critical fund talent are required to coalesce around a concerted effort to create growth opportunities for the new fund.

Developing a healthy dynamic and balance of these constituents is one of the hardest challenges within the early months of a new enterprise, but critical to the long-term successful evolution from start-up to established business.

“Coming together is a beginning, staying together is progress, and working together is success.” —Henry Ford

Finding the right partners for start-up growth is as important as securing additional investment talent for a new fund, but often is addressed as a second priority.

The funding process has to be driven by the manager, but in many cases, this process is where managers find themselves unable to make the right connections. Consequently, they try to forge ahead with limited capital and a bootstrap approach, only to ultimately fail.

“Gettin’ good players is easy. Gettin’ ‘em to play together is the hard part.” —Casey Stengel

For the fortunate ones who are able to secure financing, they must identify and partner with the right combination of in-house and outsourced resources. As the fund evolves, this balance will flex and grow to reflect the changing needs of both the fund and its investor base.

Reporting analytics, service providers, research generation, and a range of other issues will dictate where and how the fund adds to its staff or adds to its provider base.

Gone are the days where a “smart” fund can get away with massive spreadsheet-driven modeling and reporting that is arcane and managed by one or two investment analysts who become the guardians of the fund’s strategy execution.

“If everyone is moving forward together, then success takes care of itself.” —Henry Ford

The industry has responded admirably to this evolution away from internal one-off structures to include a wide range of specialized and state of the art services for funds from inception through maturity.

Over time, each fund must define its optimal mix of support that meets its needs and its budget, and revisit according to its growth path. It is a happy problem for a manager to address when the business has the ability to bring in-house some of the functions critical to the on-going growth of the business, and has acquired the financial means to do so.

Also on the management radar is the pressing need to comply with evolving standards, some of which will be mandatory, based on fund size or investor base, and some of which will be necessary from a competitive stance.

Investors are requiring that all of their investment options pass stringent compliance testing on a host of factors, both legal and operational. Regardless of whether or not a fund has formerly registered with the appropriate agencies from a legal standpoint, it must pass this investor scrutiny to meet today’s allocation standards.

Fund managers who are serious about building their business should consider joining the larger community in a number of ways. These might include engaging with trade associations, becoming an expert resource to promulgate information and trends to the investment audience, and forming a networking process that supports the fund’s objectives for positioning and growth.

“The secret is to gang up on the problem, rather than each other.” —Thomas Stallkamp

Building a hedge fund has always been a job for only the most fearless. But the added challenges and pressures of the market today have created a barrier only a select few will rise above to join the ranks of elite independent talent. Encourage the entrepreneur who, with dedication and persistence, might grow to be a powerhouse.

Diane Harrison is principal and owner of Panegyric Marketing, a marketing communications firm founded in 2002 and specializing in a wide range of strategy and writing services within the alternative assets sector. She has over 20 years’ of expertise in hedge fund marketing, investor relations, sales collateral, and a variety of thought leadership deliverables. A published author and speaker, Ms. Harrison’s work has appeared in many industry publications, both in print and on-line. She can be reached at dharrison@panegyricmarketing.com or via www.panegyricmarketing.com.

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