$50 Million Month- Lessons Learned
Castle Hill Capital Partners Inc. (Castle Hill) is thrilled to highlight that one of valued Registered Reps (RR) on the Castle Hill Broker Dealer platform raised $50 mln for his clients for a May 1 allocation window. He raised capital for two hedge fund strategies from three highly regarded Endowment and Foundation investors.
What is further remarkable about this achievement is that as a general rule, Castle Hill focuses on uncorrelated strategies that are capacity constrained; often seasoned managers exploiting structural market opportunities. These strategies rarely can tolerate more than $250-$750 mln.
We’re thrilled to deliver for our managers and introduce differentiated ideas to our investor clients. We have examined the lifecycle of these allocations closely and wanted to share 5 observations that may be of use to anyone raising capital in this challenging environment.
Long-term relationships: The allocations came from investors with which the RR had multi-year relationships. We’ve observed that LPs continue to rationalize their investment line items and finding “shelf space” is harder than ever. This is especially true in an environment where private equity has not made distributions and investors are overweight private investments. In this environment, trusted relationships are the starting point, table stakes, to engage investors and to determine whether a particular investment is a potential fit. The RR has known the individual investors for ~5-8 years respectively and in all cases was the first allocation he’s received from them.
The funds had highly differentiated return profiles: Both hedge fund strategies were performance outliers and completely uncorrelated to liquid market indices. This is a very hard environment to introduce anything less than stellar, truly differentiated investment strategies. Wherever possible we seek to remove beta or “beta-adjacent” strategies from the platform.
The process took time: Each of the allocations took multiple meetings, calls and investor information requests. Approximately 8-15 individual requests/meetings/diligence calls took place prior to final investment committee approval. The longest was 11 months, the shortest was 4 months. Patience and friendly follow-up was key.
Materials and back-up data were on point: Our clients had their materials in excellent shape and were able to move at the pace of the investor’s diligence process. Rarely were the investors waiting for our clients to create materials or “pull” data. Both of the firms have COO’s and run very buttoned up processes. There is very little margin of error as relates to the diligence process
Our RR added significant value: RR’s play an effective role across the lifecycle of an allocation - from briefing the manager on how to prepare for the marketing process - messaging/materials/expectations, to making direct introductions, gathering feedback and keeping the process on track. The RR participated in all aspects of the allocation - from Soup to Nuts. Without his involvement these managers would be $50 mln smaller.
We thought these observations may be of use to our network. We’ll come back to share more when we hit the $100 mln month milestone!