The Benefits of Pragmatic Hedge Fund Consulting

As the restrictive effects of the pandemic continue to ease, new hedge fund launches are finally coming back. This has been happening even as markets themselves are going through a period of upheaval. And as those new fund managers set about establishing their businesses, they can all benefit from expert knowledge and sound advice.

Launching a new fund can be a daunting task requiring excellent project management skills. There are multiple concurrent workstreams that each require constant attention to make sure the launch progresses in a timely fashion. There is also no “one size fits all” way to go about launching your fund. Each launch is unique in its own way, with multiple factors driving each decision tree.

A new manager should never skimp on building an industrial strength, institutional quality operation. But they certainly do need to think carefully about where to devote capital and management bandwidth in terms of strategic goals. This is particularly the case for emerging managers.

In other words, building a fund operation requires pragmatism. With the growth of the service provider community and the realities of cost, creating a fund operation that fits your AUM, strategy and budget is important and can make a difference when a company is looking to attract capital. Savvy investors treat a fund’s operations as a benchmark. Funds need to create a proper environment so they can pass operational due diligence from the most sophisticated investors in the world.

A firm’s prime broker is among their most trusted partners, with a wealth of experience to help new managers launch their business. A PB’s consulting team has years developing a consulting philosophy based on pragmatism, one that takes advantage of its deep pool of knowledge. In fact, consulting is important not only at launch, but as the fund continues to evolve and grow.

So, how should a fund manager take advantage of a prime broker’s consulting services and how can it know if it is providing sage, pragmatic advice?

TAPPING INTO A POOL OF KNOWLEDGE

The classic example of when consultancy services are needed is when a portfolio manager wants to spin off from their existing fund to create their own new hedge fund. While they may be highly skilled investors, portfolio managers may not have track records in building and running companies. There is a long list of functions and decisions that will be unfamiliar for most PMs.

One of the first considerations is whether your prime broker’s consulting team has people who have experience building a fund themselves. Cowen Prime is run by former hedge fund managers who understand the business based on lived experience. Collectively, they have dozens of years of fund management experience.

A second factor is reach and relationships. Does the prime broker have a global presence? Does it have a large enough web of relationships to be able to recommend and connect a manager with the right service providers? This applies not just for start-up funds but also for any fund looking to enter a new market.

A third factor is whether your prime broker has a demonstrated track record successfully consulting with their clients and helping navigate a new launch or change.

GETTING STARTED

Diagnosing a fund’s needs is critical as it sets the direction of the various workstreams that need to start. From there, creating a plan to prosecute each workstream to maximize the busy new founder’s return on time is important.

Next, your prime broker needs to have a wide network of relationships and be up to date on the vendor landscape to provide the right advice and introductions. In this respect, a prime broker acts almost like a value-add service directory.

Cowen not only has offices around the world, but it has expertise in multiple asset classes. Its prime brokerage service also benefits from sitting alongside a world-leading outsourced trading service, which means the institutional knowledge base is extensive.

LEVERAGING A TRUSTED PARTNER

Often, fund managers only think to approach a prime broker for consulting when it is obvious that they would benefit from advice. But in our experience, there are many other occasions, often not necessarily involving major strategic junctures, when a brief conversation could save a firm money or save time. For new fund launches we would suggest the earliest possible engagement to set the project off on the right track. Cowen Prime Brokerage focuses on constant dialogue with its clients to help them navigate any new initiative or change to their business.

Fund managers chose their prime brokers for a variety of reasons, and the value of consulting services is only one of them. But the importance of sound consulting is likely to rise given the direction of global markets.

We expect managers will place extra value on consultation as fund launches and activity continue and as these long-term investment trends continue. As a full-service prime broker, sharing our knowledge and expertise with our clients is one of the most rewarding parts of doing business.

Cowen offers a full range of prime brokerage services for funds of every size and style.