The tear sheet, a one or two-page summary of an alternative fund’s performance history, is the first real impression that a hedge or private equity fund makes on an investor. All too often though, tear sheets are created improperly and generate a poor representation of the fund company. As we have said in other newsletters, you have got to look the part when you cater to HNW individuals. Here are five tear sheet faux pahs that will knock you out of consideration right out of the gate. We have also interviewed a professional alternative fund marketer for his take on what he has seen the top sellers do right with their alternative fund tear sheets.
#1 Missing Contact Information
We realize that hedge funds have to present a kind of mystique and not be too available, just like the pretty girl at the dance who will not answer your phone calls. We get it. But do not take it to unreasonable extremes. If someone is reading your tear sheet, it has gone past the first date. So, avoid annoying them by playing hard to get and include your phone number in the header or footer or along the side of the sheet.
#2 Not Authentic
Yes, just like the 7th grade book report that the teacher knew was copied, elite hedge fund managers play monkey-see-monkey-do, on occasion. While there are certainly no drawbacks to taking a page from another hedge fund’s marketing book, let’s not take that too literally.
Copying another fund’s marketing may lead to legal troubles in extreme cases and in the very best scenario is a complete murder of your own unique brand. It is competitive enough out there. Make your presentation stand out by doing something original.
And by the way, here is a word to the wise — you may want to send your marketing materials in a Secure PDF to avoid unwanted duplication.
#3 Confusing Performance Presentation
Typical mistakes that alternative funds make with their tear sheets are including gross (not net) returns and mixing hypothetical and actual figures. Aside from being compliance issues, it lacks professionalism and engenders distrust in the eyes of the sophisticated investor.
#4 DIY Design
We have commented before in other newsletters that even to the untrained eye, it is apparent when hedge and private equity funds DIY their own marketing materials. The tear sheet branding should be consistent with the PowerPoint deck as far as logo placement, color scheme, and typefaces.
Tear sheets are commonly sent out to all prospects and clients in the monthly email blast, or along with investors’ monthly statements. It is a nice way of staying on top of mind without having to send the entire deck, and should mirror what you are saying in your PowerPoint. One should flow into the other and to achieve this effect a custom designer can make sure both have the same look and feel. PerTrac and other software packages provide raw Excel exports of your performance, but do not make the mistake of leaving it as is. Consistency makes the brand!
#5 Eyesore Disclaimers
Can’t live with ‘em, can’t live without ‘em.
Legal disclaimers protect the firm from the risk that somebody interprets their performance as a guarantee of future results and takes action based upon the assumption. They also ensure that the fund’s trademarked intellectual property will not be stolen. While they are a necessary evil, they do not have to dominate your entire tear sheet.
Tear Sheet Advice from a Professional Hedge Fund Marketer
To get an inside view on how tear sheets impact the selling process for alternatives, we interviewed Sunil Sachdev of VantagePoint Alternative Investments, a boutique alternative investment/ hedge fund marketing firm that specializes in capital placement and advisory services for single strategy funds and managers.
According to Sunil, “The presentations and tear sheets are standard industry documents and they do look a lot alike, however the basic information on them is important. The analysts will review this information to decide if they want to have an initial call with the manager. The sales process is long and it can differentiate you from the other 10,000 funds out there.”
Sunil recommends that the investment strategy description be included at the top of the page, that way the analysts can see what the fund is trying to accomplish. After that he suggests including the performance numbers and the relevant statistics such as volatility, Sharpe Ratio and correlation to the S&P, that way the reader can determine if it is a low or high beta product. Painting a picture for the investor by including the annualized and cumulative returns are important. As these vehicles are absolute return products, compare the performance against the Credit Suisse Hedge Fund Index, S&P 500, or Russell 2000.
For exposure, he guides hedge funds to include the average gross and net, and perhaps a breakout by geography. For US funds, break out the holdings by market cap (small, mid, or large).
In addition, Sunil recommends that alternative fund tear sheets capture information about the Portfolio Manager, inception date, redemption policy, management fees, performance fees, and whether there is a hard or soft lock. Lastly, detailing out the service providers such as Auditor, Administrator, Legal, Compliance, and Prime Brokers reflects high professionalism by signaling that you are outsourcing to capable third parties.
The Bottom Line: Get a Tear Sheet that Tears It Up
In today’s marketplace, it is no cake walk for alternative funds as consumer appetite has weaned, leading investors to be choosier about who gets their capital. Dollars are flowing to the top performers and that is why the tear sheet is of incredible importance. Here is an example.
For long/short equity funds, investors like their managers to have a bit more concentration. If a fund has 50% exposure to the top 5 longs, just by hearing this, investors are interested to know more. They are less interested in seeing 25 positions in 50 different stocks. Especially if they are paying 2 and 20, they want to see concentrated portfolios. Investors are expecting more and more, and the tear sheet’s job is to convey what the fund can deliver to meet these expectations.
The bottom line is that alternative funds should do what they are paid to do and that is to provide a high level of expertise that most investors can not produce on their own. The tear sheet should reflect that in a way that is concise, organized, and professional and above all says something about how you are different from the next one!
If you want a tear sheet that tears it up, email jessica@karmankreative.com.