What are the challenges when raising a first-time fund?

What are the challenges when raising a first-time fund?  I asked Marlon Sanchez, Founder and CEO of Hong Kong-based research and advisory firm Skyway Pacific, as part of a wider conversation about investment in Japan, China, and India, the best performing hedge funds, and bridging the US with East Asia. Marlon and his Skyway Pacific partner Chris Nash have been involved in more than 100 hedge fund launches in the past two decades. Their team suggested several key points for emerging managers, with the human factor at the heart of it all.   ‘It’s the investment in people that’s the most important investment. It’s the team build,’ Marlon says. 'You have to be a business builder as well as a great fund manager.’ That means getting the right founders in place at a new firm. He recommends that a good COO should be the number-one hire by the CIO.  Chris emphasizes this point: ‘The COO is absolutely the second key piece of the puzzle.’ The relationship between a CIO and COO creates the culture for the new business, he explains. It gives investors confidence about the fund manager’s operations and oversight.  

Their colleague Joseph Kwong adds that an emerging GP needs to develop a distinctive style that differentiates it from its competitors. ‘I think that is the crucial part – and most importantly, they stay true to the style. There shouldn't be any style shift over time.’ 

Doris Wen suggests that switching from, say, a portfolio management role at a big firm to running your own outfit means considering operational risk and reputational risk as well as market risk: ‘You need to find a balance about how you allocate your time between investment activity and building the business.’  Marlon adds that competition for talent among hedge funds and the need to keep people on board are crucial. ‘Your biggest vulnerability is that everyone on your team could find a place at the next multi-manager platform, whether it's in business development, financing, operations, or as an analyst. You have to be much more of a business builder. That’s paramount in terms of assuring investors about viability and longevity.’