BW: It’s increasingly difficult for managers to raise capital, especially start-up managers in a world where there are thousands of hedge funds trying to raise capital. How do you get your edge? How do you attract that money? The “build it and they will come” philosophy that concentrates just on returns is no longer good enough. Investors want to see proper infrastructure. They also want to see operations and risk management with effective marketing essential to growth. But when dealing with potentially complex investment strategies that’s not always straightforward. 

With this in mind we’ve assembled a panel of allocators, family offices, introducers, operational due diligence specialists and a client of mine who seems to have spent most of his time this year running round trying to raise money. I’ll hand over to our moderator, Stuart MacDonald of Bride Valley Partners.

SM: [In my professional life] among other things I have tried to raise money for hedge fund managers. Some of them were established, but some were early stage and the attrition rate is dreadful. It’s worse than it was when we set up shop four and a half years ago. So while the scope of the discussion can go beyond that, we’re going to focus primarily on the exigencies of getting an emerging manager off the ground. There are opportunities to do things differently and avoid the pitfalls that some repeatedly encounter or create for themselves.

Each member of this panel approaches this space from a slightly different angle. I think the range they represent will help us address this quite effectively, and I’m going to ask them to introduce themselves.

ML: My name is Maria Long, I work for Man FRM which is the part of Man Group that allocates to third party managers. I work on the operational due diligence team.

MdK: I am Mark de Klerk, a day one partner with Tages Capital. I head up our seeding strategies efforts. We have been focused on investing with emerging managers since our inception and we’re currently deploying our second vintage of seed capital.

MR: I’m Michael Rosenthal, the CIO at a family office based in London and we invest significantly into hedge funds at all stages of their life cycle.

KT: I’m Kris Tremaine, the emerging manager who’s spent most of his last few years raising money. I’m the founder and chief investment officer of Kimura Capital.

OR: My name is Ole Rollag, and I’m the founder of two businesses, Murano and Pueblo. In the main we try to make it easier for managers and investors to get together.

SM: Let’s kick off with an open-ended question to set the scene. Looking back over the last decade, what are the one or two things that you think have changed most?

ML: I think managers now have to be a lot more institutional from a much earlier stage. They are also having to do that with much less margin as fee pressure increases. As a result the trend towards outsourcing and automation has increased dramatically over the last ten years, even within the last few years. The company I work for, FRM, prior to its acquisition by Man Group was started in an attic in 1991. But I don’t think it’s as easy to do that these days if you are looking for institutional investors to invest.

MdK: I definitely agree. I think the industry has just generally become more conservative, especially post the financial crisis. I think that this is partially a result of the institutionalisation of the industry and partially due to the growth in the consultant side of the industry. This has a generally conservative business model which is not necessarily predicated on steering their client base into emerging managers.

That said, the broader fund of fund industry has struggled in the last few years. Pre-financial crisis those were typically the allocators who had the resources to do the work and in many cases take the early stage risk of investing with emerging managers.

Now the thought that you can come along with a good idea and somebody will put $50m or $100m into it just to try you out feels as if it’s from a different era. That has resulted in a decrease in day one capital and seed capital, which has made it that much harder to get off the ground. I think we’ve seen a decrease in the number of managers who have launched as a result of that. But it also provides opportunities for those who are still in the space and are able and willing to do the work.

MR: I think one has to split the transformation over the last ten years into changes on the supply side of the industry and changes on the demand side of the industry.

The supply side has evolved significantly. If you look back to the Nineties and the early years of this century, many hedge funds in certain strategies were born out of proprietary desks. That dynamic has changed post the Volcker regulation and therefore the natural evolution of talented risk takers’ careers has changed.

On the demand side the institutionalisation of the industry has changed things dramatically. If you look back to 15/20 years ago, the family office space and private wealth was a key supplier of capital. Today it is institutions – insurance companies, sovereign wealth funds, pension funds who are the suppliers of capital. This has created opportunities for managers but has also brought challenges for smaller less institutionalised managers that were not there previously.

Beyond this, markets in many asset classes are far more efficient than they used to be. So the extraction of alpha has become more challenging. Much of this phenomenon has been driven by technology and therefore the quantum and perhaps quality of alpha which managers were able to extract in the Nineties and the Eighties cannot be extracted today in the same way. This has raised the bar for the industry.

KT: The absence of the early stage traditional seeders in the market has definitely been one major factor. So you’ve really got to think about where you’re structured, where you set up jurisdiction-wise. This should ultimately be driven by your early stage investors but that doesn’t always chime too well with the wider picture.

We structured as a Cayman vehicle initially because we thought a lot of our investment was going to come out of the US. However, none of the investment we have in our company today has come out of the US. These things weren’t such a great factor when we started up our business. It’s a reminder that as a business owner, the amount of responsibility and additional work that you have from a regulatory perspective is night and day.

OR: I think if you look at the industry over the past 20 years it used to be fairly small, very cliquey. We’ve witnessed massive growth within that space, but there has also been growth in the investors that are giving advice. These include family offices investing in hedge funds, and also retail investors.

What that’s done is bring in a lot of competitiveness. There’s a lot of confusion among managers as to how they compete within that space. Very few managers actually ask themselves how they compete.

Whether you’re a big manager or small manager you still have challenges. Big managers have to prove themselves through their performances and small managers have to pay to have a business. So everybody has a problem and everybody’s a bit frustrated. The other thing that I would say is that steak and wine lunches don’t work anymore.

The product has to succeed on its own merits.

SM: On the question of how to compete, I think a lot of people who develop a strategy or market it fail to realise quite how competitive a situation is. When seeking potential backers’ attention, they’re under the illusion that everyone just wants to look at their tweed jackets or that this is something they’re going to go into with two people who simply allocate.

The remark about funder funds’ position diminishing was absolutely spot on. Pretty much all you had to do was go up and down with the run and some of the funder funds might back you. It was that easy when there was so much money floating into the industry. [Now it’s] a lot more difficult.

In terms of the constraint in terms of the inflow of talent, I would just ask whether we are perhaps looking in the wrong place in terms of that question. These days a lot of people are getting more specialised and moving outside the kind of spaces that hedge funds used to look at. For example the kind of fund that Kris set up would have been a real rarity ten, 15 years ago.

I’d like to ask the two allocators how many approaches you get by phone, by email or by other means from people trying to raise money from you in a typical day?

MdK: I am not sure if there is a typical day. I’m quite lucky in many respects. Although I have a very full mandate, we have a research team doing a lot of screening and analysis before a manager gets to me on the seeding side.

At Tages Capital, seeding is one part of a broader business. The bulk of our business is comprised of bespoke mandates for institutional clients, where we are often focused on emerging managers. I specialise in the seeding side of things but it’s the same research process employed across the business.

There are a lot of contacts that we screen, who come in via cold call or unsolicited emails or LinkedIn requests that don’t make it over to the research team.

The volume of approaches is significant and the one thing I would say is that we’ve never seeded a manager who contacted us via LinkedIn or sent an unsolicited email.

My viewpoint is that you are a manager looking to set up a business, taking the biggest step in your career and the most financial risk you are probably ever going to take, with the understanding you’re going to invest a huge amount of time in this business. If in that situation you can’t be bothered to actually do a little bit of homework on who the seeders and early stage investors are out there and figure out a way that you are going to approach them via a contact or at least via one of the prime brokers, then it leaves me with concerns about how you are going to approach the rest of your business and other projects down the line.

MR: We operated in a similar manner when I was at Amundi with teams around the world focused on strategies and geographies. At Signia we know what we are looking for at any point in time and are focused on going out and finding it. You build up a wide network of people after two decades in the industry. There were periods between 2002 and 2007 when our biggest challenge was [that] we couldn’t put capital to work fast enough. Size becomes a challenge. You know what your threshold as a manager is, at the same time you’ve got your own internal rules in terms of how large a holding you can be. With a family office it’s different as there’s nothing wrong with cash and there’s nothing wrong with investing in illiquids.

SM: Mark mentioned LinkedIn. It’s a great way of publicising an event like this one.

But there are all sorts of pitfalls. Sometimes they are unavoidable and sometimes people just walk into them without an excuse. Kris, what were the pitfalls, what were the mistakes that you found yourselves making? What object lessons did you learn or have you learned that you can pass on?

KT: Well believing our own hype was pretty high up that list we thought.

We thought that with “Manchester City” on the paper we have, it would be easy to find an early stage seeder or align ourselves with the business where we could get a hundred or two hundred million through the door. That meant there were a couple of occasions early on where we let a smaller opportunity just pass us by.

One of the things you really need to consider is that the reality of this whole scenario is that you’re trying to get a business started to prove that you can actually manage money. It’s a runway and when you start bringing people together and start doing the structuring that runway gets shorter and shorter. So actually it took me three years to get any capital into a vehicle because we were too busy messing around with large institutions like ‘Black’ this and ‘Something’ that. We ended up launching with nine million dollars.

In sum, everything’s going all right three years later but it wasn’t easy in the early stages. I think what really helped us though was getting into that institutional corporate mirror structure as quickly as we could. Having first class PPMs was a differentiator for an early stage manager. We just picked our market incorrectly to begin with.

MdK: Can I pick up on a couple of points there?

SM: Of course Mark.

MdK: First of all, sitting in my seat you see both sides of the challenging asset raising side. It’s not just hard for the underlying managers, it is also hard for many of the allocators. We are also out there trying to raise capital to invest. I spent the last three years trying to raise capital for a private equity hybrid structure to lock up capital and invest in early stage hedge funds.

I think we all believe our own hype and think we’ve got the best products and the reality of it is that it is very challenging to raise capital. I’m most impressed with managers who come in who have actually done their homework and who have a very healthy dose of realism. That’s very rare. I am very seldom surprised to the upside on the early stage asset raising and certainly we often have conversations with managers who say “there is no way we need seed capital, we just want to talk to you about a founder share class”.

Sometimes we are talking to them again six months later in respect of seeding transactions. Sometimes, on the odd occasion that’s actually moved to seeding discussions, but in most cases we have deployed elsewhere and it’s been a missed opportunity for the manager because they weren’t more realistic on the asset raising environment. It’s really important to understand it’s tough for everyone.

The other point to make, and this is a balancing act, is that at the end of the day performance is key and sometimes it is important to just get up and running. There may be acceleration opportunities after slowly building up the asset base – once you have the capital – in a way that is credible to institutional investors, if that’s the market that you’re going after. However, sometimes you just need to get up and running, prove your process, print some numbers and build a little bit of momentum.

SM: One bit of advice from me is that if you want a multi fund don’t try and go out there on the back of a simulator performance, it’s just not going to wash. Ole do you want to pick up on this one here?

OE: Yes, I think we are going back to the base question.

What you need to understand is that managers in large investment houses get about three to four hundred emails a day. We know one whose been in the industry for 20 or 30 years who gets 2,000 a day, so emails don’t count.

When you ask people, “well which ones do you read” they say, “well, I’ll read the ones [from people] I know”.

If I don’t know who you are I’m just going to pass it because I can’t manage the volume of emails anyway. What’s kind of funny is that the phones are silent. How many phone calls do you guys get?

MdK: Luckily, I don’t get as many calls as that because we have a screening process. I don’t have the time in the day to speak with repeated cold callers.

The truth of the matter is that most of our successful sourcing is via our own personal networks and sometimes via prime brokers or other service providers.

MR: Most of our supply is via our network and via prime brokers, maybe some service providers. We receive several calls a day but it is manageable.

SM: I think we’ll come back to that question, but Maria, what do you see as pitfalls?

ML: I think the pitfalls that I see probably come in at a slightly later stage when the managers have caught the attention of the investment team and there is an interest in investing.

One of the most common issues occurs when portfolio managers are spinning out from a large firm. They will have been running their portfolio somewhere with full back office support, a whole legal team and compliance team. They don’t quite realise how much actually goes in to running the business. You need to have someone you trust that understands the business side from day one. You could have stellar performance but if your business collapses around you then that doesn’t really do the investor any good.

KT: Can I jump in there?

ML: Of course.

KT: I would absolutely recommend focusing on your COO. If you’ve got a quality COO helping your business run – we have a fantastic one, he’s incredibly useful, he’s the best COO I’ve ever worked with.

In today’s world, as Maria said, with the regulatory burden and the weight of everything else, if you want to focus on your business, you’ve got to have a top Ops guy.

ML: I agree on the COO. I can forgive an awful lot of mistakes or I can work with people to fix them, but if you don’t have a strong COO that I think understands the business then it’s much harder to work with that.

MdK: I am going to echo all of that but I am going to pick you up on one point.

You said you’ve got to have a good Ops guy. In reality I think the biggest mistake that some early stage managers make is that they think of the business side as just being an Ops role. So they hire a head of operations and dress them up as a COO. Whereas the reality of it is that there is a lot more to running the whole business.

We want to see somebody in the COO role who is a proper business partner who is going to be running the whole business side of the venture. Of course, you as the founder are going to have a significant input into many decisions but at the end of the day we want to see a credible business partner who we know gets it and can run the whole business, not just operations. Operations is one component, an important component, but only one component of running a business which allows the PMs to focus on managing the portfolio.

OR: Michael looks like he might want to disagree?

MR: One of the most significant changes over the last five or six years in the industry has been that due to all of the new regulation and associated costs, where previously highly talented managers would never have dreamed of doing anything other than leaving their organisation and having their name on the door, there’s now a choice and they are willing to have the conversation with the type of platforms they would not have managed money with a decade ago. Platforms are able to hire the calibre of PMs that they never would have been able to get in 1995 or 2005 or 2010. So if you can go in, in the morning and just turn on your Bloomberg and not have to worry about all the things we are talking about tonight and you can still manage $1bn, there’s a decision to be made. If you look at the platforms, the kind of high calibre PMs they have been hiring over the last three, five, six years in various strategies are quite different from the kind of people they were generally hiring ten or 15 years ago.

OR: Are you suggesting that we’ve now got to a point where, to borrow Hayek’s title we’ve come to the end of “The road to serfdom” in the sense that really you don’t have much choice except to be supported by or embedded in or sitting on top of some sort of institution backing your platform?

MR: Absolutely not.

OR: Okay.

MR: I think the pendulum has swung somewhat so that dollar for dollar the kind of manager who would have said that he or she would not entertain a conversation with such businesses in 2005 will indeed have that conversation today.

OR: That is a much more important area and I think we should explore the pros and cons of going down that route.

MR: I think what is really important is the commerciality of it. We talk about emerging managers as a group – how do we launch, how do we get it done? What people don’t talk about enough perhaps is where we are in the cycle.

There could be 300 long short equity managers in Europe but there might only be ten distressed debt managers in Europe launching and the distressed cycle might well start to look interesting over the next few years. So I think timing is everything and I think the prime brokers have become very good at advising their underlying clients when to come to the market, a little bit like an IPO.

MdK: A lot of people have been too early Michael.

MR: It’s not just talent and it’s not just having a great COO, timing as in any business is key. I guess in this building [Eversheds Sutherland], they will start to think about building up their insolvency team at the right time of the cycle, and it’s no different in the hedge fund space.

MdK: I expect you’ve seen some macro strategies do extremely well just at the time where a lot of allocators were giving up on the strategy.

MR: It is important to not just put the whole industry in one basket. Individual strategies and sub-strategies matter at different points in the economic and in the market cycle.

MdK: I agree with that. Luckily we just seeded a systematic macro manager. Hopefully that’s a good sign from you, but the more serious point from me is that I think you’re absolutely right that the majority of managers that we meet, wanting to set up a hedge fund at a particular point in time, probably shouldn’t and often we tell them that they shouldn’t.

I think that more competition for talent is coming from the platforms, multi-strategy funds and other asset managers from five or six years ago. In many cases a manager should join a platform and shouldn’t launch a business because it is very tough to get to scale. You have to be willing to invest a huge amount of money and effort in order to actually launch a business.

However, I do think the quality of those managers who are determined to take the risk, who are putting in the capital and who say “actually the thing I really want to do is run a hedge fund” is on average much higher. So the talent we are seeing today compared to five or six years ago is in many cases very impressive.

SM: Do you guys want to comment?

OR: Tages has a really good report on launching a hedge fund business, and what it says is that one of the first things you need is a good business development professional. Do you remember that one?

MdK: We put out a couple of reports. If it was the seeding one it was probably one of a few points that I raised.

OR: The two points that I’d like to make here are:

One, you’re having a rewriting of the business risk. I know one story, and who knows if it’s true, that back in [the Noughties] a guy could just go round to a couple of family offices in the afternoon and raise $20m. Maybe that’s true, maybe it isn’t, but I don’t doubt that there’ve been instances like that.

But when you look at the rewriting of risk and where it should be, ie how many of these hedge fund businesses fall apart after two or three years and how much money is spent, that is astonishing.

The other thing is that there is a very big disconnect between the asset management or the asset manager and the owner of the business. One thing we found out was that the fund managers tend to think that assets are just going to be attracted to them. They’re particularly poor at running a business because they can’t do the two things of running a business and running a product. So, if you look at the amount of assets, there’s a fantastic number of managers for whom the business sense is just not there. They don’t have the right people to run the businesses. It’s really frustrating when you see beautiful strategies that fail for a hundred thousand different reasons.

MR: I would add that there is sometimes something of a conflict of interest between the business owner and the portfolio manager, because the enemy of alpha generation is very often size. There are exceptions, but they are exceptions rather than the rule. And it is those portfolio managers who understand and respect the liquidity of the underlying asset class in which they are investing, who will ultimately do well. You cannot manage the same portfolio size in Japanese small caps as you can in global macro. It sounds obvious but again and again one sees this as a problem.

SM: Let’s go back to the platforms. Maria do you have anything to add?

ML: I see a lot of people now deciding to launch within multi-PM models or platforms because it can be easier, but it really depends what your motivation is for starting. If you just want to manage money and that’s all that you’re really interested in then that’s probably ideal. There are so many things that you won’t even realise people are doing for you when you work in another business, right down to who gets your business cards printed or orders your stationery. It can be the small things that will trip people up. It’s a lot of work to start a business so you have to really want to run your own business to make that succeed.

SM: Well Kris you took the plunge and took the shilling from a big institution, what’s your experience? What difference did it actually make?

KT: One of the things that we noticed in the part of the market that we sit in was that there was a collection of boutique managers so there was no institutional brand to offer to the space. We didn’t want to run fickle East Coast of the US money, or fund of funds, or too many family offices for one. Because eventually then our product would lend itself to endowments and longer term committed investors. So we wanted to dress ourselves up in institutional clothing. That’s why in April last year we entered into a strategic partnership with GAM.

Obviously they had their attention focused elsewhere for a while and that slowed our progress to the point where certainly consultants weren’t interested. They weren’t able to differentiate between, “Yeah but it’s called GAM something”, and “No, we’re totally independent of GAM, we just are in strategic partnership in that they distribute our funds for us globally”. That said no one could have foreseen they were going to have those problems. Sure enough they are a very professional organisation and now out the other side. Things are beginning to pick up with those guys, and the reasons behind going into the partnership were the right reasons, but again, Murphy’s law always seems to prevail. You’ve got to be ready to extend that runway. The storm we had to weather certainly slowed the growth, but things are looking up for both sides of our partnership.

SM: Okay, I want to shift ground slightly, back to mistakes that managers make, pitfalls they encounter. Let’s start with Maria on this in the operational space. Can you talk particularly about what might happen if managers want to get through to institutional as opposed to random cocktail investors?

ML: There are a couple of things. I think one sits somewhere between those two discussions around the agreements made with seeding investors.

I’ve seen a couple of instances where people have just given away far too much. I’m not talking about the revenue share side of it but the other agreements they’ve made.

I’ve seen managers that have given their seed investors the right to change the investment risk guidelines on the fund; the right to opt out of side pockets and be able to opt out of gates. Institutional investors are never going to invest when a large investor has those terms because they’re going to be left holding the problematic assets when it all goes wrong.

I think the other big mistake is more on the soft side. It’s not listening during the operational due diligence process. I’m not looking for a way to say no, I have an investment team or client that really wants to invest in this fund. I have to make sure it meets certain criteria but view it more as a partnership. So I am quite willing to work with people and give suggestions to help make changes. Most other DD teams will be flexible. I appreciate that a four person start up is not going to be able to have the same controls as a large established manager. There’s got to be flexibility in there and as long as the key elements of independence and segregation are there we’re willing to work with you. Yet I still meet early stage managers who think that the way that they’re doing it is the right way, they won’t listen even when we get to the point when we’re saying we cannot invest with you if you don’t do these things, but people will still just say no. So listen to the advice given would be the best advice that I could give you.

SM: Anyone want to add to that?

MdK: I agree with the point about listening to advice. In a seeding transaction, once the manager has gone beyond the background and reference checks that are dealing with any sort of ethical or reputational type of issues, they will be subject to an institutional level of due diligence, in many cases for the first time. In a seeding transaction this tends to quickly flip into a sort of advisory type of role. If you’re not going to listen to people who just happen to have seen a lot of emerging managers and seen what works and what doesn’t, if you’re not humble enough to take some of that on board then you’re probably setting off in the wrong type of relationship. There are not that many allocators who are actually willing to spend the time giving advice and so actually managers should appreciate this because there are a lot of people who will waste your time and won’t tell you how it is. I’m amazed how many investors will take multiple meetings where there are things that are obviously wrong knowing they will never invest.

SM: Is that because they want to show their employers they’re busy?

MdK: Some people just don’t like to have confrontational discussions or give disappointing feedback.

I’m going to supplement that by saying that although I think it’s important to build an institutionally investable infrastructure and business, everybody should appreciate that you have the ability and may need to scale into this.

So, I would also advise, as I have seen this mistake made a few times, don’t go out and build the business on the basis of $1bn AUM on day one, because you’re probably not going to get to $1bn in the first couple of years. You might just build an operation with a cost base that you can’t support and find that you don’t have as much runway to being successful as you would otherwise have had.

ML: It can be more of a red flag. If you have $50m in AUM and you’ve built out a ten person operation team with sophisticated systems just in case, then the capital in the business is going to disappear pretty quickly. I think the important thing for us is the controls not that everybody who will be needed in the future is there on day one.

You need a strong operational framework. Outsourcing is fine to a limited extent, provide that the COO or somebody else in your business has the knowledge to oversee that outsourcing. You can’t have somebody who doesn’t know anything about operations overseeing an outsourced operational process.

The really important thing is to have in your mind a road map and be able to articulate that from where you are now to where do you want to be when you get to a given amount of AUM. So you might hire separate compliance officers when you get to $100m or you may expand out and buy an order management system. You need to show that you’ve thought about the risks to the business as you grow and how you’re going to need to scale your business to cope with that sort of growth.

SM: Anyone want to add to this?

MdK: One other issue that I come across is just general arrogance. It’s just not a great starting point if you come in claiming to know it all and are set in your ways in exactly what the terms are and what works and what doesn’t. The reality of it is that your early stage investors are going to work with you and in some cases maybe even dictate what those terms actually are, depending on the type of investor.

Also, don’t exaggerate. You’re probably going to go through an extensive due diligence process and the more things that turn out not to be true or exaggerated, the worse it looks. If there are weaknesses just be up front about them, lay your cards out on the table. If it’s something that’s going to come out in a background check it’s better to be dealt with upfront. If you’ve made mistakes explain how you have dealt with those, how you have learnt from those and what you will do differently going forward.

We have had examples of transactions that haven’t gone ahead, in some cases at a very late stage, where something has come up which we weren’t informed of upfront and it’s very hard to recover from that point, in terms of trust.

And as I said previously, please don’t go into your early stage investor meetings with the message of “I’ve got everybody chasing me from X to Y to Z. I’m going to be $500m in six months and a billion in a year’s time and you’ll be very lucky to be involved.”

SM: But do you think that conveying the idea to potential investors that there’s real momentum behind what you’re doing commercially makes a difference?

MdK: Absolutely, I think momentum is very important but there are more subtle ways you can communicate that.

Words alone don’t mean anything to be honest with you. I don’t want to be too harsh because I think we all have aspirations of raising more capital than may be is realistic, certainly I’ve been in that position. But you also need to be credible about the numbers you put on the table.

It’s a ridiculous example but I had an email that came in the other day and the guy had a business plan together and in it he writes, “I see no reason why in a few years’ time we shouldn’t be competing with BlackRock and Vanguard. I think we can get to $1trn easily.” I mean what do you do with that?

OR: As emerging managers [and] also [as] experienced managers there are a number of products that are really great strategies, but they’re poorly housed in the wrong structures. When allocators are looking at the product, they’re going to say “Oh yeah, this product is kind of similar to this one, what are the [P] structures, what are the liquidity terms?” Listening to the allocators is incredibly important.

ML: I think that’s one of the other pitfalls. I quite often see fund documents using standard templates in which the lawyers have included all possible options. You could be looking at a managed futures, fairly liquid fund yet it’s got provisions for gates and side pockets or risk factors for credit investments just because it’s a boiler plate document. You have to tailor that to the fund and strategy. Managers have had to change their fund documents for ODD teams when there’s no need for those terms to be in there.

I remember being in the fund of funds business in 2008 and everything was being side pocketed and gated. There are still side pockets out there left over from then, there’s some funds that are still winding down due to these assets. It’s so important to get that right at the start from both the manager and the investor perspective.

MdK: Relating to that point, as a seeder, I believe that is one of the big mistakes that some seed investors make. We will never ask for preferential liquidity over other investors. We are also early stage investors, in many cases where others have seeded and we have requested that seed agreements are changed so we can be comfortable to invest. For us, preferential liquidity for the seed investor is an absolute no.

[The discussion was followed by questions to the panel]