From single-family offices to outstanding entrepreneurs, super-rich clients worth $500 million or more are increasingly establishing their own investment vehicles and aggregating funds for direct investments.
Many single-family offices, for example, are very attracted to club deals. The establishment of consortiums is also becoming increasingly common. It is also very clear that super-rich clients are establishing an impressive track record as successful investors in middle-market companies.
The third-generation scion of a super-rich family, working in his family office, wanted to launch a hedge fund where he would put together the investment team and manage the assets. His family seeded the fund to the tune of $40 million. He was responsible for raising additional funds and was restricted from going to existing relationships of the family or their single-family office. His intent was to have a hedge fund totaling $200 million, which meant he had to raise $160 million from investors he personally sourced.
After about six months of knocking on doors of institutional investors, third-party marketers and people he knew, he hadn’t brought any money to his hedge fund. This lack of success led to a capital raising approach based on a bespoke networking methodology. The following is a very simplified outline of the approach:
• Preparations: Before approaching anyone, three preparatory business development actions were taken. His very extensive list of contacts was evaluated and high-potential individuals were identified. A customized assessment instrument was developed. Then a “template narrative” was constructed.
• Evaluations: Using a customized assessment instrument, likely investors were assessed from his high-potential list.
• Solicitations: The evaluations, coupled with the template narrative, resulted in highly individualized narratives for each “probable” investor.
This highly individualized approach resulted in an inflow of assets into the hedge as well as introductions to other potential investors. The hedge fund raised more than its initial goal, closing fundraising at about $500 million, including the seed capital. What is critical to understand is that the success of this capital raise was predominantly a function of the super-rich inheritor’s very extensive and powerful network.
Without a doubt, a preponderance of the super-rich has amazing personal and professional contacts. However, based on extensive analysis of this cohort, a relatively small percentage of them are doing as much as they can to effectively leverage, let alone maximize, the diverse and consequential value of these relationships.
With concentrated and customized networking efforts, the super-rich can easily benefit from their often broad and deep array of existing relationships. It is a way of exponentially multiplying the value of their relationships to raise considerable assets for investment and achieve extraordinary goals.
Russ Alan Prince, president of R.A. Prince & Associates, is a consultant to family offices, the ultra-wealthy and select professionals.
