HF Alert reports that Goldman Sachs is planning an all-star cap-intro event next week.  They appear to have pulled a page directly from the Live Nation concert playbook.  Instead of taking risks with smaller acts in small venues – LN prefers to book aerosmith, Madonna, Cold Play, U2 pay them well and book ginormous venues.

We have arrived at that point with Cap-intro. Next week, Goldman will hold their annual cap-intro event at Chelsea Piers. From three days at a Florida resort, we go to 1 day at the largest health club in the city. It features some of the biggest “acts” in hf history.  How a smaller fund breaks through this line-up and grabs some attention is a real challenge.

Hat tip to HF Alert:

Goldman Sachs has lured some of the most prominent hedge fund managers to a capital-introduction event scheduled for next week, flexing its muscle at a time when many prime brokers are still struggling to find their footing.

The bank’s senior management has been working the phones to get big-name fund managers to attend, and the efforts have paid off. The biggest coup: Steve Cohen, head of SAC Capital, is slated to attend. Cohen, whose Stamford, Conn., firm manages around $12 billion, rarely attends cap-intro events.

Other marquee names who have RSVP’d for the May 14 event in New York include AQR Capital’s Cliff Asness, Galleon Group’s Raj Rajaratnam, GLG Partners’ Pierre LaGrange, Maverick Capital’s Lee Ainslie, Millennium Partners’ Israel “Izzy” Englander, Och-Ziff Capital’s Dan Och, Pershing Square’s William Ackman, Third Point Capital’s Dan Loeb and Touradji Capital’s Paul Touradji.

Let me repeat: SAC, AQR, Galleon Group, GLG, Maverick, Millennium Partners, Och-Ziff….at Chelsea Piers, in New York, on one day.

This impressive list of managers tells us a few things about the state of the hedge fund industry and the unique marketing challenges for hedge funds.

1. Everyone is open  

There are no closed funds anymore.  Every fund will accept new capital. Many of the marquee funds have been closed for some time and therefore had no reason to participate in marketing events. Those days are over. If you have money to invest and can meet minimums (which are likely flexible) you can put it with the best and the brightest

2. Heavy redemptions from large funds

Whether it was because of performance or if they were being used as an ATM, these marquee managers had outflows last year. A new phenomenon for many. I suspect that once the outflows commenced that their marketing pipeline was virtually non-existent. Many of these managers are simply not used to singing for their supper. The fact that they have agreed to participate tells you 1 of 2 things. 1. they believe in marketing or 2. they are forced to start believing in marketing.

3. PBs focusing on profitable clients and “acts that can fill the seats”

There is now no ambiguity as to the motivation of the top tier prime brokers. Whereas at one point there was lip service paid to helping hedge funds build a business and help them “raise capital”, you will hear none of that from the big guys.  They are focused exclusively on their most profitable accounts and on institutional quality names. It was always thus, however, now there is no confusion. A welcome development (see point 5).

4. “Optics” matter

The choice of chelsea piers says  much about Goldman’s insistence on keeping its head down, not drawing headlines or offering the press opportunities to sensationalize what is a standard customer event.  The focus is back on the actual point of cap-intro, not the one-upsmanship of bigger and better venues or events. Although… I hope that the rain we’ve been having in NY holds off because 23rd and 11th is a schlep!  

I am long car services positioned near the West Wide highway.

Finally and most importantly

5. More difficult for small acts to get airtime

If the goal of cap-intro is now to only provide access to the largest and most profitable funds, how on earth will smaller funds (smaller than a billion in this case) get noticed?

Short answer: they have to do it on their own.

The music industry does provide some useful clues on how to build distribution.

Small bands use the internet to gain exposure, play smaller venues, think creatively about their branding and play the music they like and know how to play.  Acts don’t make it big by playing covers, they gain a following for being unique and passionate. Most of the time they don’t make it but have a pretty good run enjoying what they do. 

Hedge funds should think similarly.  

Have a product with a clearly defined edge. If you don’t have an edge, one might as well invest in SAC.

And if you are not going to be playing the Meadowlands anytime soon, then focus on smaller venues with a more discerning audience. Take advantage of third party “cap-intro” providers – full disclosure: we are one. These provide an opportunity to build a following and gain valuable feedback from quality investors. Are you going to meet CalPERS there? No, but they’re not investing in you anytime soon as it is.

Spend some time and $$$ on branding.  Being a quant that doesn’t “care” about logos or formatting does not fly. If you want to build a following you need to create a branding identity that investors will recognize.

Goldman Cap-intro Event Draws Big Names.

HF Alert

May 6, 2009