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One can't dispute that the majority of capital flows into the big funds, the Blackstone's, Carlyle's, Bridgewater's of the world, etc. We all know why, don't we? Well here's an entirely different perspective.
It simply relates to a breakdown in communication. Society has changed how it receives and processes information. Regardless of whether you are a teenager or a CIO, you handle information differently than you did 20 years ago. The alternatives industry hasn’t evolved. It is still stuck in the land of power point decks and the traditional model of forming relationships.
My point: large asset managers have the resources to maintain their connectivity with allocators, even if their tactics are brutish and inefficient. And appreciate that the more resources you direct towards communication the more you learn. Not only do the larger funds have the resources to support inefficient tactics, they are also evolving faster than their smaller counterparts, which compounds the problem.
The alternatives industry is at a very monumental impasse as it relates to communication. Allocators have not banded together with the intent to starve the smaller managers. They continue to pursue what they have always pursued, high risk adjusted returns, and it is well documented that smaller more agile managers deliver this in greater regularity than their larger counterparts. The problem, smaller managers just aren’t being heard.
Most emerging managers that we encounter complain about how hard it is to raise capital. One would then extrapolate that it is a bad time to start a fund. I disagree entirely. There has never been a better time to start a fund. It has never been as easy as it is today to be heard.
At some point our industry is going to catch up to the rest of the world. It is going to be harder and harder for the larger funds to dominate the bandwidth of investors, large or small. If you are starting a fund, don’t do what you did the last time. It isn’t going to work. Embrace new thinking and new tools. With so few of your peers doing the same, the ROI will be there.
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