Opalesque Exclusive: Managers in sweet spot are focusing on more aggressive fundraising from institutional investors – Arrow Capital
Wednesday, March 10, 2010
From Kirsten Bischoff, Opalesque New York: For the past few months as inflows have started to increase, institutional investors evaluating managers for allocations have made it clear that the bar for securing assets has been raised. According to most investor surveys, managers need a minimum track record of five years with strong performance, a history of maintaining liquidity to investors (or a very compelling explanation for any gates raised during the financial crisis), and comfort with a high level of transparency along with the infrastructure to support it.
Although the number of funds has been severely reduced, there remains a group of managers that meet these stringent requirements and that recognize that now is the time to step up efforts to secure these inflows into the industry. For New York-based Arrow Capital Management, an event-driven alternative investment firm launched seven years ago by Alexander von Furstenberg and Mal Serure, this means taking more proactive steps, one of which includes the recent hire of industry marketing veteran, Ivan Wanat.
“Since launching in 2003, allocations have been largely from word of mouth referrals. We have not proactively marketed,” senior analyst John DeRaimo says. The hire of Wanat marked the beginning of an asset raising campaign by the team at Arrow Capital, in what the firm views as a move to increase and diversify their investor base.
“We see the opportunity set in front of us as so compelling; the risk adjusted returns that our investors are seeing now and should see over the next few years have never been so attractive,” von Furstenberg told Opalesque during a recent interview.
Strategy, performance, and expectations
Von Furstenberg and Serure view their mandate as global and opportunistic, having invested primarily in large and mid-cap US, European and Asian public equities during the last 7 years. The pair’s current focus is on opportunities in large US multinationals. “I’ve been waiting more than a decade to invest in some of these companies at these valuations, that’s also why we are proactively raising capital for the first time,” says von Furstenberg.
“We view the opportunity to invest in large, multinational companies with high operating margins, conservative balance sheets, and strong management teams as unprecedented – it’s the current ’special situation’,” he says. In addition to high quality companies undervalued in relation to their earnings power, the firm continues to pursue more traditional event-driven opportunities around catalysts such as spin-offs, demutualizations and post bankruptcy re-orgs.
Waiting for the right event and valuation to unfold in order to invest in a company they have spent years researching is nothing new to the team. Arrow Capital currently has multiple positions that are now being established after years of research and management meetings.
Transparency and Liquidity
While performance is still the best way to gain the attention of institutional investors, more and more are increasing their focus on a fund’s history of transparency and liquidity. Arrow Capital’s beginnings as a strategy to run internal family assets was set up to be transparent from day one. Arrow’s results have always been audited and the firm has provided its clients with monthly statements and security-level transparency.
Like many managers Serure and von Furstenberg are conscious of potential investors’ interest in the firm’s stability through the financial crisis. “We are definitely receiving more detailed questions about our finance and operational infrastructure and we are happy to field them,” says von Furstenberg.
When discussing investor redemptions that they saw through the credit crisis, they echo a trend that Opalesque has observed in many recent interviews. Whereas prior to 2008 investment managers were loathe to discuss redemptions, Arrow Capital is quick to point out that they, like many firms had clients make redemption requests for myriad reasons.
Acknowledging this, they are able to then make a claim that only a limited number of managers can, “We did have redemptions and the assets were returned to investors. We did not suspend redemptions,” he says, noting the team has opted not to include the option for gates or side pocket vehicles in their offering documents. “One of the things I’m really proud of is the liquidity we are able to provide our clients given the liquid nature of our underlying investments.”
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