Inside Morgan Stanley's Asian hedge fund ball
Shanghai hosts Morgan Stanley's regional event to bring hedge fund managers and potential investors together.
It's the debutantes ball.
That first billion always was the hardest. For most hedge fund managers it is a journey not a race, and any help in raising cash is worth accepting.
ôI want capital introductions,ö is the birthing cry that goes up from rookie managers but also from established veterans expanding an existing fund.
Prime brokers make profit on the leverage they provide, their cash management and the stocks they lend out. To entice clientele, prime brokers have mastered the art of bringing together investors and hedge fund managers under one roof. In Asia the capital introductions conference circuit has been operating for several years and has become the focal point of where new talent is unveiled.
In Shanghai in early June, Morgan Stanley ran its capital introductions conference, which unites 250 institutional investors with 40 hedge fund managers. Asian Investor was invited to spectate at this union.
The door policy is strict.
Rule 1: A manager must offer an Asia-specific fund. You canÆt be one of Morgan StanleyÆs 40% of prime brokerage clients who trade Asia inter alia with other markets, but you have to be one of the 7% who operate an exclusively Oriental fund.
Rule 2: Hedge fund managers arenÆt allowed to come in two consecutive years, in order to keep the faces fresh.
Rule 3: Since it is the investors who drive demand, they influence the prime broker on who will receive an invitation. So it is a must that the managers on show can offer a balanced range of strategies and have the expertise to articulate issues in ways that investors find interesting.
We all love rules, but what does all this mean? These failsafes are designed to make sure that the investors can feel secure when they are buying their air ticket that they will get access to worthy members of the crop, and vice-versa.
This Shanghai conference is in its second year. In the States, Morgan Stanley runs its well known ôBreakersö conference for seasoned managers each year in Palm Beach Florida, plus an emerging managers conference. It also runs an event in Europe.
ôThe US is in the sixth inning of the maturity cycle for hedge funds. Asia is in the second inning. So thereÆs still a lot of growth and development ahead,ö says Gerard Coughlin, managing director of global sales at Morgan StanleyÆs prime brokerage. ôGlobally the hit ratio of successful investments following meetings is running at about 4-6% and likely higher at a targeted event like this.ö
So you bring your hedge fund to the conference. There are round table discussions on stage in an auditorium where the managers have an opportunity to show their expertise through topics of discussion and debate. None have any ambitions to remain small, and the words æa billion dollarsÆ proliferate.
Then, the managers and investors, æbreak-outÆ. They disappear off to private rooms, for group sessions and one-on-ones, where the skirts are lifted a little higher and their individual strategy is discussed.
ôIn AmoebaÆs capital raising programme, I have met about 100 investors in Europe and American, plus another 50 at the Morgan Stanley emerging managers conference in Naples, Florida and another 50 here in Shanghai,ö says Ashutosh Sinha, managing partner and CEO of a new long/short Asian hedge fund, Amoeba Capital. ôIf I get a 4-6% hit rate and each one allocates $10 million, that gets me to my initial $100 million target and I will be operating above my estimated $50 million break-even.ö
Looking at the other side of the coin, there is a tsunami of investors here. By day two of the conference, there were even more people wearing the green badge, the mark of the man with money to allocate.
ôThis year is one of the best bunches of managers that IÆve seen. I can meet a lot of people quickly, I triage out a few managers, both undiscovered diamonds in the rough and talented new faces,ö says Mihir Meswani, director of public market managers at the Robert Wood Johnson Foundation, which plans to invest a billion dollars in hedge funds directly and renounce its former policy of going into alternatives via funds of hedge funds.
HeÆs in the business of writing tickets of an average size of $50 million. If itÆs a truly special start-up, he might place $25-30 million with a manager at a conference like this. Unlike funds of hedge funds who might feel obligated to come away with a couple of definite prospects in order to make the trip worthwhile, he can afford to take his time. All the number-crunching and hard soul-searching comes later. For all, this conference is a first date, and they seldom go beyond first base here.
These events are expensive to hold. It can run into millions, so the prime broker wants to encourage investors and hedge funds to make the long trip. The venue is important. People donÆt want to fly halfway round the world in order to go somewhere drab. For this event, organisers chose Shanghai as a place where investors and managers want to come. Beyond that, the city represents a metaphor for what Asia has to offer.
ôItÆs a dynamic location, itÆs a new Asia cityö says Kurt Baker, head of Morgan StanleyÆs Asia prime brokerage. ôThis is just part of our capital introductions strategy. We know what is interesting to investors and we plan accordingly. The way in which we deliver capital introductions might be through a conference, or it could be a roadshow for a fund. The latter is very tailored and makes sense for pretty much any hedge fund.ö
So these are the nuts and bolts of a capital introductions conference. Start your hedge fund and cross your fingers that the postman will put your invitation through the letterbox.
That first billion always was the hardest. For most hedge fund managers it is a journey not a race, and any help in raising cash is worth accepting.
ôI want capital introductions,ö is the birthing cry that goes up from rookie managers but also from established veterans expanding an existing fund.
Prime brokers make profit on the leverage they provide, their cash management and the stocks they lend out. To entice clientele, prime brokers have mastered the art of bringing together investors and hedge fund managers under one roof. In Asia the capital introductions conference circuit has been operating for several years and has become the focal point of where new talent is unveiled.
In Shanghai in early June, Morgan Stanley ran its capital introductions conference, which unites 250 institutional investors with 40 hedge fund managers. Asian Investor was invited to spectate at this union.
The door policy is strict.
Rule 1: A manager must offer an Asia-specific fund. You canÆt be one of Morgan StanleyÆs 40% of prime brokerage clients who trade Asia inter alia with other markets, but you have to be one of the 7% who operate an exclusively Oriental fund.
Rule 2: Hedge fund managers arenÆt allowed to come in two consecutive years, in order to keep the faces fresh.
Rule 3: Since it is the investors who drive demand, they influence the prime broker on who will receive an invitation. So it is a must that the managers on show can offer a balanced range of strategies and have the expertise to articulate issues in ways that investors find interesting.
We all love rules, but what does all this mean? These failsafes are designed to make sure that the investors can feel secure when they are buying their air ticket that they will get access to worthy members of the crop, and vice-versa.
This Shanghai conference is in its second year. In the States, Morgan Stanley runs its well known ôBreakersö conference for seasoned managers each year in Palm Beach Florida, plus an emerging managers conference. It also runs an event in Europe.
ôThe US is in the sixth inning of the maturity cycle for hedge funds. Asia is in the second inning. So thereÆs still a lot of growth and development ahead,ö says Gerard Coughlin, managing director of global sales at Morgan StanleyÆs prime brokerage. ôGlobally the hit ratio of successful investments following meetings is running at about 4-6% and likely higher at a targeted event like this.ö
So you bring your hedge fund to the conference. There are round table discussions on stage in an auditorium where the managers have an opportunity to show their expertise through topics of discussion and debate. None have any ambitions to remain small, and the words æa billion dollarsÆ proliferate.
Then, the managers and investors, æbreak-outÆ. They disappear off to private rooms, for group sessions and one-on-ones, where the skirts are lifted a little higher and their individual strategy is discussed.
ôIn AmoebaÆs capital raising programme, I have met about 100 investors in Europe and American, plus another 50 at the Morgan Stanley emerging managers conference in Naples, Florida and another 50 here in Shanghai,ö says Ashutosh Sinha, managing partner and CEO of a new long/short Asian hedge fund, Amoeba Capital. ôIf I get a 4-6% hit rate and each one allocates $10 million, that gets me to my initial $100 million target and I will be operating above my estimated $50 million break-even.ö
Looking at the other side of the coin, there is a tsunami of investors here. By day two of the conference, there were even more people wearing the green badge, the mark of the man with money to allocate.
ôThis year is one of the best bunches of managers that IÆve seen. I can meet a lot of people quickly, I triage out a few managers, both undiscovered diamonds in the rough and talented new faces,ö says Mihir Meswani, director of public market managers at the Robert Wood Johnson Foundation, which plans to invest a billion dollars in hedge funds directly and renounce its former policy of going into alternatives via funds of hedge funds.
HeÆs in the business of writing tickets of an average size of $50 million. If itÆs a truly special start-up, he might place $25-30 million with a manager at a conference like this. Unlike funds of hedge funds who might feel obligated to come away with a couple of definite prospects in order to make the trip worthwhile, he can afford to take his time. All the number-crunching and hard soul-searching comes later. For all, this conference is a first date, and they seldom go beyond first base here.
These events are expensive to hold. It can run into millions, so the prime broker wants to encourage investors and hedge funds to make the long trip. The venue is important. People donÆt want to fly halfway round the world in order to go somewhere drab. For this event, organisers chose Shanghai as a place where investors and managers want to come. Beyond that, the city represents a metaphor for what Asia has to offer.
ôItÆs a dynamic location, itÆs a new Asia cityö says Kurt Baker, head of Morgan StanleyÆs Asia prime brokerage. ôThis is just part of our capital introductions strategy. We know what is interesting to investors and we plan accordingly. The way in which we deliver capital introductions might be through a conference, or it could be a roadshow for a fund. The latter is very tailored and makes sense for pretty much any hedge fund.ö
So these are the nuts and bolts of a capital introductions conference. Start your hedge fund and cross your fingers that the postman will put your invitation through the letterbox.
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