Raising funds for alternative financial companies and new alternative fund managers can often be a challenging and complex task. This difficulty arises from the inherent characteristics of alternative investments, which, by their very nature, come with technical, regulatory, and compliance limitations. These can vary greatly depending on the country and the investor involved.
The Allure of Alternative Investments
However, as market trends and statistics show, the alternative investment sector is rapidly growing and highly attractive to institutional and qualified investors. Increasingly, alternative assets are seen as essential components of investment strategies by institutional investors and portfolio managers. Their aim is to achieve significant returns and maximize diversification compared to traditional instruments. Additionally, alternative asset classes are valuable allies in risk diversification and management.
The Dual Nature of Alternative Investments
The aspects that make alternative investments both challenging and appealing for both the sell-side (financial companies and fund managers) and the buy-side (institutional investors and portfolio managers) include:
- High Entry Threshold: These products are often reserved for institutional investors and High Net Worth Individuals (HNWIs) due to the large sums of money required and the complexity of the operations.
- Specific Regulation: The regulation varies by country and product type, and is generally more complex than that of traditional financial products. This is due to the riskier and more innovative nature of these investments.
- Advanced Investment Strategies: Hedge funds and alternative bonds use diversified and often highly sophisticated investment strategies, which can be difficult to present to investment and compliance committees.
- Valuation and Transparency Challenges: The complexity of these strategies can make it difficult for investors to fully understand the risks and potential returns.
- Liquidity: Some alternative products may have limited liquidity, making it challenging to sell the investment quickly.
Crafting a Successful Fundraising Strategy
These factors necessitate a carefully planned and structured fundraising strategy by the alternative financial company proposing the investment. This involves medium-term planning, starting with a well-crafted narrative that clearly defines the targets of the alternative investment strategy or asset class, along with its inherent risks and track record.
For new alternative financial companies and fund managers, it is also crucial to carefully consider the presence of competitors in the market and the commercial strategies they have adopted.
Another key aspect is the accurate selection of the target audience in line with the type of alternative investment strategy being offered. A generalist approach to fundraising and distribution in this context would be too imprecise, time-consuming, and costly, without guaranteeing the desired results.
Finally, it is important to carefully consider the timing of the alternative fund or bond’s market entry, as even the best strategy may fail if investors can achieve similar returns with more accessible, understandable, and easily evaluable asset classes.
It is worth noting that, given the same returns, a plain vanilla asset is always more attractive than an alternative asset.
Additionally, the liquidity of the strategy and, consequently, the ease of liquidation for investors must be taken into account.
The Role of a Specialized Distributor
In such a context, having a specialized distributor in alternative investments to support the financial company or fund manager is crucial. This not only helps in building a solid and effective fundraising strategy in the primary market but also ensures potential liquidity in the secondary market, thanks to the brokerage license and the commercial partner’s willingness to invest additional efforts. A distributor acting as a market maker can provide liquidity when an early investor needs to exit their position. This function should be seen as a fundamental value that will contribute to the success of the investment product and strategy over time.
Conclusion
In conclusion, greater accessibility to alternative investment strategies and products undoubtedly broadens the market, welcomes new alternative financial companies and fund managers, and enhances diversification, offering potential alpha opportunities for investors.
However, it is essential for both the sell-side and buy-side to adopt a well-planned and professional approach, with attention to detail, to help grow a market that holds immense and promising potential for the future.
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