Manager due diligence goes virtual as cap intro moves online
The pressure to find high-performing strategies and managers has never been greater, and in recent months the tools to do just that have mushroomed into a cottage industry.
The new working from home regime has forced data providers, third party marketers and capital introduction teams to reimagine what it means to allocate capital thanks to the growing reliance on Zoom calls, webinars and technology platforms to review managers.
Goldman Sachs’ foray into virtual cap intro raised eyebrows last month, illustrating what many in the business were already embracing on a smaller scale. The Marquee Connect platform allows hedge fund managers present their funds, connect with potential investors and control over how their information is shared online.
And even well-known third-party marketers are now relying on technological solutions to address investors’ needs for due diligence and managers’ aim to be seen as they launch new funds or market existing ones.
“Being open to performing manager discovery and due diligence virtually will expand investor access to a wider range of products,” said Lisa Vioni, CEO and co-founder of HedgeConnection, a fin-tech firm. “In addition, managers should be able to get exposure to a more global universe of investors because using technology lowers barriers such as eliminating the cost of travel and having to attend expensive live conferences.”
Vioni said Agecroft Partner’s popular Gaining the Edge Conference — a fixture in the autumn conference schedule in New York — is now going to be held in October as a virtual cap-intro event relying on her firm’s technology platform Fintroz.
“The use of technology should also democratize the capital raising process,” she added.
Earlier this year, Fintroz expanded to become a SaaS enterprise technology solution for those interested in customizing the popular meeting platform. The online meeting can be structured for a single presenter or multiple and users have the ability to have break-out sessions within a single event retaining the feel of an in-person conference. There are even opportunities for networking of course.
Vioni pointed out that she has seen more acceptance of hosting meetings online due to coronavirus as well as an increased level of comfort in joining webinars and doing virtual operational due diligence on the part of investors.
“Most investors have been happy to move to virtual meetings,” said Paris Jordan, head of consulting at Murano a bespoke investor connections and research firm in the U.K. This summer there have been numerous virtual conferences and managers are attending, she added.
Having recently joined Murano from wealth management firm Sanlam, Jordan is now working with investors interested in Murano’s data on managers and at the same time the team is collecting trends on the investors’ investment interests.
“There is an awareness that the bar has been set higher,” said Jordan of the new normal in investor due diligence. Larger institutional investors generally do require more due diligence. Because they are unable to do face to face, they tend to use third party research more than before. So that helps them to bypass some of the constraints by relying on a consultant, according to Jordan.
She noted that many investors have had their research processes upended and are now relying more in-depth due diligence questionnaires and supplemental Zoom calls.
For example, investors are diving into issues regarding disaster recovery processing of trades, information around risk management in the current COVID-19 markets and now more allocators are looking to meet with back office teams via video conferencing in addition to the investment team because office visits are not possible.
The larger the allocator, the more difficult the process and many have sat on the sidelines in the early months of the pandemic. In turn, investment has slowed from what many expected it would be this year.
“Where there are allocations, a lot of allocators tend to be investing with managers they are familiar with or working with managers they were already knowledgeable of over the last three to six months,” observed Jordan.
