Position Your Fund for Success: How to Start Small and Grow Strategically
Imagine you’re building a house— one that needs to provide shelter and stability for many years. Would you rush the process or construct it with care and deliberation? The same mindset applies to launching a fund. By starting small and building in phases, fund managers can create a strong foundation for long-term success.
As part of that foundation, it’s critical to identify respected service providers who can serve as trusted partners — a topic we discussed in a previous blog post. With the right expertise from service providers, you can respond more effectively to investors’ preferences. Let’s take a closer look at how fund managers can benefit from slow, strategic growth that aligns with investors’ needs and creates the capacity to scale operations.
Leverage Experts to Create Efficiencies
It’s common for new investment management companies to have no more than two employees as they build a track record with initial investor capital (typically friends and family money). When you start small, you can gradually build credibility, setting the firm up for growth.
To succeed with a small staff, investment managers must rely on trusted service providers — such as fund administrators, prime brokers, audit and tax firms, and legal counsel. These experts will expand your firm’s capabilities without forcing you to add employees out of the gate. With these trusted partners, you can gain efficiencies by leveraging their experience and technology. This gives you the flexibility to scale at a pace that benefits your business.
Understand Your Current Investors’ Needs
Fund managers are often tempted by the idea of immediately launching a fund in multiple jurisdictions — but this approach can be costly, particularly if there aren’t sufficient seed investors lined up.
Instead of launching a complex fund structure on day one, consider the initial investor base and evaluate their needs. For example, suppose the initial investors are primarily U.S. accredited investors. In that case, it may be prudent to launch a standalone Delaware Limited Partnership as opposed to a Cayman Master Feeder fund structure. As you continue to listen to investors’ needs, that will inform future fund decisions. You might choose to add a feeder fund or expand into a new jurisdiction at a later date.
Know When to Add New Products or Strategies
Some fund managers get carried away with their enthusiasm for new initiatives and overlook the insufficient infrastructure and demand. Don’t make that mistake. When you think about adding new products or strategies, keep these considerations in mind:
- What can you reasonably achieve with a small team? Conduct an honest assessment of your ability to launch and manage new products or strategies effectively.
- Are you in love with an idea that isn’t aligned with investor needs? Don’t fall into this trap. Carefully assess whether enough investor demand exists to support the initiative and build a business case for launching it.
- As your firm grows, you may add new products or strategies. This allows you to attract investors based on the firm’s track record and relationships built on trust. Remember, reputation is everything. Avoid sabotaging it with ill-timed initiatives.
Know When to Expand the Internal Team
A common question from fund managers is, “When should I add more personnel to my firm?” We have some advice to share:
- Start by determining whether there is ample room in the budget to add a new hire.
- Assess where the new hire is needed the most. For example, do you need an analyst or CFO/COO?
- Consider the type of investors you want to attract. Are they looking for specific internal personnel who might add credibility to your firm?
- Although there is no clear-cut answer, the general rule of thumb is to hire an analyst when the Fund’s AUM reaches $50 million and a CFO/COO when the AUM reaches $100 million.
Our global team consults with investment managers on new fund launches and firm expansion. Learn more about Swiss Financial Services Market Entry Services by reaching out to a member of our team.