Managers find personal touch vital ingredient for fundraising

Alternative money managers are finding it harder to attract investments from new clients in the era of virtual meetings despite strong interest in their strategies as asset owners resume investing during the pandemic.

The problem, sources said, is the reluctance in most cases for institutional investors and managers to meet face-to-face given the global COVID-19 restrictions. Despite a much-improved facility by managers in presenting their investment strategies and providing information for due diligence checks via remote communication channels, industry observers said many asset owners still are not comfortable with a digital-only acquaintance.

"There's an abyss that asset owners have to jump over when it comes to getting to know potential investment managers for your fund via a Zoom meeting. There's a natural human-comfort factor that comes from meeting in person," said James Neumann, a New York-based partner and CIO of investment consultant Sussex Partners U.K. Ltd., London.

"There's a bias toward expanding relationships with existing managers because it's much harder to go from an initial call to hiring a new manager, especially in this environment," Mr. Neumann added.

Richard Nuzum, president of Mercer Investments LLC, New York, agreed. "It has been very difficult for managers to build new relationships during the pandemic. It's just so hard for investors to do basic due diligence," Mr. Nuzum said. "While it's tough to launch a new fund in a normal environment, it is close to impossible now. We've seen very few launches."

Mr. Neumann said the pace of investments "really slowed down between March and July as allocators were in a deer-in-the-headlights period as they tried to figure out what to do during the pandemic. There's a realization now that the fourth quarter is upon us and they have got to start investing again to be ready for 2021."

"Public pension funds in particular have to get it done and are taking action to make their investments," Mr. Neumann added.

An analysis of Pensions & Investments' reporting showed a slowdown in the amount of assets invested or committed to alternative investment managers for the year through Sept. 21 compared with the same period in 2019.

Assets committed to strategies including hedge funds, private equity, real assets, real estate, infrastructure, special situations and distressed debt totaled $113.8 billion for 1,216 mandates so far this year.In contrast, the 1,104 mandates for alternative investment approaches totaled $162.7 billion year-to-date Sept. 21, 2019.

Additional allocations made to existing strategies are not included in the totals above.

The level of investment and commitment to alternative strategies in 2020 might rise by year-end given that search activity for alternative strategies totaled $4.1 billion for 27 mandates as reported by P&I during the 2020 COVID-19 pandemic period (Feb. 28-Sept. 21).

The actual total of assets going to alternative investments likely is higher because some mandates did not specify a mandate size.

After six months of meeting with new and existing managers on a screen or on the phone, asset owners are resigned to the process but not fully satisfied.

"We've adapted to the use of virtual meetings for all manager meetings, but we look forward to the day when that won't be necessary," said Scott Davis, CIO of the $30.2 billion Indiana Public Retirement System, Indianapolis, in an email.

Madison Realty Capital, New York, is among the established alternative money managers — it was founded in 2005 — that have been communicating closely with existing clients and attracting new investors.

The firm is a real estate private equity manager focused on private debt and equity strategies, a combination that "has become a lot more popular with institutional investors since the global financial crisis … which was good training for us in managing through the COVID-19 pandemic," said Adam J. Tantleff, managing principal.

Close contact with the firm's existing investors was critical in February and March, Mr. Tantleff said. "Clients wanted to know what was going on in the markets and we had to ask them for time while we figured it out. We were able to provide more answers by the end of March and early April."

Mr. Tantleff agreed with other sources that most investors will gravitate to their existing managers or those they already know given the uncertainty of in markets now, but he added that Madison Realty has seen significant interest and investment from new clients, though he declined to provide details.

He credited Zoom meetings for the firm's success in staying in touch with existing and potential clients. "Zoom is great if you know how to use it. It's incredibly efficient. I can be in five countries in one day," Mr. Tantleff said.

Madison Realty Capital manages $5.6 billion.

As for what other less established alternative managers are doing to attract new investors, "the entire marketing process has changed. Prior to the pandemic, 90% of manager meetings with institutional investors and consultants were face-to-face. It's a very difficult environment for fundraising when you can't get in front of investors in person," said third-party marketer Donald A. Steinbrugge, founder and CEO of Agecroft Partners LLC, Richmond, Va.

His firm is conducting a virtual capital introduction event for hedge funds over two weeks this month that likely will attract more than 1,000 attendees, Mr. Steinbrugge said.

The Agecroft event, like others, features speed dating-style meetings to introduce managers and potential investors.

"People don't prefer virtual speed dating, but it's the only thing you can do right now. Short meetings like this give investors a good update on the manager and it's better for pension funds because they're more efficient and don't require travel," Mr. Steinbrugge said.

A new capital introduction firm, iConnections LLC, Gladwyne, Pa., combined a charitable fundraiser with a virtual cap intro event that attracted 309 alternative money managers and 385 potential investors in June and July, said Ronald J. Biscardi, co-founder and CEO.

All the fees paid by managers to participate in the event were donated to food-oriented charities.

About 3,000 virtual meetings between managers of all sizes and investors and consultants took place in conjunction with the meeting. Mr. Biscardi said he could not provide details but noted that commitments or investments were struck between investors and managers.

IConnections also offers a membership service that connects alternative asset managers and service providers, which must pay a subscription fee, with asset allocators.

Another approach is "to step up the game on remote meetings," said Rachel S.L. Minard, founder and CEO of Minard Capital LLC, San Francisco, an outsourced marketing consultant to money managers.

Ms. Minard said her firm helps portfolio managers produce better four- to five-minute videos that replace their old 40- to 50-page reports on their investment strategies; provide client access to a manager's virtual "data room," which is "like stepping into someone's office" and active problem-solving and customization to meet investor needs.

Ms. Minard said the pipeline of potential new business for her investment manager clients totals $2.8 billion.