The more competitive the capital raising market becomes, the more alternative fund managers are looking to get better control over the costs of this crucial exercise.
Rather than rely on traditional routes – placement agents, third party marketers, or investment banking capital introduction teams – London-based Murano gives the buy-side community the chance to take greater ownership of the asset raising cycle by bringing it back in-house.
Ole Rollag is Founder of Murano, a disintermediary that sits directly between investors and managers to help both parties make a relevant connection. By asking questions that are specific to its fund manager clients, Murano not only improves the quality of sales pipelines, it also helps investors cut through the swathe of manager talent when looking to allocate capital.
“Solutions like ours help dampen the noise,” says Rollag.
Rollag explains that Murano is looking to position itself as a credible alternatlve to the more traditional routes cited above and re-set the dial. In effect, Murano’s value proposition is to offer investment managers a cost-effective solution with a broader reach and, if used effectively, greater control over the sales process.
Cap intro 2.0
What Murano and other solutions are doing is presenting fund managers with an alternative capital introduction model. One that utilises technology to more intelligently match investors with managers by understanding their investment proclivities. Think of it like the machine learning algorithms in Netflix that make suggestions the more you use the platform. Murano is similar, but rather than algorithms it relies on good old fashioned human interaction. The more Murano’s analysts understand allocators the better they are able to find managers to fit their needs.
“When we started Murano in 2011 it was basically missionary work. There wasn’t a modified cap intro model in the marketplace or match making service between fund managers and investors. But if you think about, this is an extremely efficient method of doing things. The challenge we face is, not only must we get it right for the fund manager, we also have to get it right for the allocator. But we embrace that challenge,” enthuses Rollag.
Another factor playing to Murano’s advantage is the size of the market. A decade ago, capital introduction was key to a fund manager’s business development. Investment banks were able to bring a real value-add to the table because the universe of hedge funds was much smaller; say 2,000 to 3,000 funds. Fast forward to today, and there are in excess of 10,000 funds. This has diluted the influence of cap intro teams.
“In many ways, what we provide is a pure dating service. Investment managers want to speak to the right investors and neither party wants to waste each other’s time. You don’t want to be cold calling. We assist in that regard by sitting between the manager and the allocator to try to find the right fit,” says Rollag.
Rollag says that the the biggest issue managers need to think about when looking to raise AUM is, ‘Why would somebody buy the fund?’ One of the most common gripes that Murano hears from allocators is that there are too many ‘Me too’ funds in the market.
Oftentimes fund managers simply do not know what makes them so special.
“We will ask managers who their competitors are, why they think allocators would be interested. If someone says they don’t have any competitors, that’s when the alarm bells go off. Managers need to think about what they are bringing to the market and if it is a ‘Me too’ strategy, they could think about competing on price to differentiate themselves,” adds Rollag.
A more transparent cost model
Established in 2011, Murano has steadily grown to a team of 27 people, most of whom are based in London although there is a strategic push underway to build out the sales team in New York. Currently, there are approximately 80 investment manager clients on the Murano platform. There are 33,000 allocators in Murano’s network, and as Rollag confirms: “We have spoken to approximately 15,000 of them so far and developed relations with 7,500. We are having in excess of 200 conversations a day.”
“The first and most important reason for investment managers – both hedge and private equity – to consider using a platform like ours is cost. A third party marketer will initially set up meetings but after the first meeting the sales process mostly goes in-house. However, managers are still paying them 20% off the top line. It’s a very expensive way to get meetings and potential sales.
“At Murano, we don’t have an agency relationship or take commissions off the back of any assets that fund managers raise. We don’t represent anyone so there’s never any danger of mis-representation. It’s a very pure play,” explains Rollag.
Indeed, investors will only contact a manager if they feel that what they offer corresponds to what they are looking for, in terms of specific investment objectives. It makes for a much easier, friendlier, time-efficient and cost-efficient way of doing things.
The number of reports that a manager receives from Murano will depend on the nature of the fund and various other factors but in Rollag’s experience with Murano’s hedge fund clients, approximately 40 to 60% of reports result in a first meeting.
Then, all things being equal, the manager has a 5 to 10% chance of getting an allocation.
If approximately 40 to 60% of the reports Murano produces results in a first meeting, and the manager closes one in every 20 meetings, that’s a pretty clear business model. It allows managers to gain more transparency on how expensive their capital raising process is likely to be over the next few years.
Rollag believes that getting behind the numbers is important. What does it actually cost a manager to raise capital? How much are they paying sales staff? How many business trips were taken to close one investor? How much was spent attending conferences?
“When you interrogate the numbers it can be somewhat of an eye opener,” says Rollag. “Investor relationships are so important when it comes to building trust with investors, getting them to re-subscribe to new funds etc. Ultimately, private equity managers need to own those relationships. Does the economics of using placement agents work for all managers? Maybe not.”
Proof is in the pudding
The obvious question at this point is, ‘Where’s the proof in the pudding?’ Is Murano’s approach having any tangible impact on the AUM of managers on the platform?
This is not as straightforward a question to answer as might first appear. After all, fund managers are not likely to shout from the rooftops that they’ve secured a new allocation. So for every match making success that Murano hears about from the allocator, chances are several more have stayed under the radar.
“It depends how well we know the manager. It’s always nice to know. Each of our analysts makes about 60 calls a day and writes up one or two reports, and they have no idea what the outcome of that work is. So when you do find out that it actually led to an allocation it is very rewarding.
“We have one global hedge fund manager who raised USD100 million last quarter and we have a US private debt fund that just raised USD150 million,” confirms Rollag.
As the funds industry continues to expand, platforms like Murano are offering a way for managers and investors to connect in a more meaningful way. And with time being such a precious commodity, that is no bad thing.