Dakota 2021: Fundraising Trends Post-COVID

If you missed the 2021 Dakota Conference (or you just want to revisit some of the great discussions that were had), don’t worry. In addition to full, streamable videos, we’re sharing the transcripts of some of our panels so that you can read them at your own pace.

In this article, we're sharing the full transcript from the Fundraising Trends Post-COVID panel. During this session, the panelists discussed how fundraisers can expect to move forward as we continue to navigate through the pandemic environment.

An interview with Gui Costin, Dan DiDomenico, and Frank Edwards

S1: 00:00

Okay. We want to welcome back to the stage our founder, Gui Costin. He's joined by our president of Dakota, Dan DiDomenico, and from Aqueduct Capital, Mr. Frank Edwards. The topic is going to be asset raising in a post-COVID world, and we do welcome questions. We did get some questions sent to us before this panel. But if anybody wants to raise their hand, I will come over with the microphone and we'll hear your question. But Gui, let's turn it over to you.

S2: 00:27

Great. Chris, thanks so much. Everyone, I know that's probably troubling pulling this off the river, but it's gorgeous. Great having everybody here. So thanks so much. We wanted to just do a panel. This is, I'd say, a quick panel. This is going to be no later than 10 after 1:00. The whole idea though is we have two experts on both sides of the fence, and I'll just ask them to introduce their firms. But Frank Edwards has been a longtime friend. I think you started Aqueduct Capital in 2006. He's raised over $13 billion for a variety of different private equity, private credit, and some special situations firms on the private side. So Frank, do you just want just to give a little-- and what we're trying to do is we're trying to get thoughts about raising capital and private equity during COVID and now post-COVID. What's going to stick with you? And then from the Dan DiDomenico perspective, who's almost exclusive long-only on the public side, the same thing from Dan. So we'll start with you, Frank. Can you just introduce Aqueduct?

S3: 01:24

Absolutely. Aqueduct is an alternative marketing platform that today we're 16 people spread out around the US really focusing on purely alternatives. And we're going to represent somewhere between six to eight managers at a time, obviously all in non-competing strategies. And generally, those mandates are going to be somewhere in the 6-to-12-month range. And--

S2: 01:55

What are the typical size of the mandates you raise capital for?

S3: 01:58

So the typical mandates are really running anywhere from about 250 million to call it 900 million. We're doing what we'll do-- on the private credit side, things get a little bit larger. But generally, it's in-- our sweet spot is really in that call it 400 to 600 million dollar range.

S2: 02:22

And Frank, channels you cover in order of priority like public pension funds, consultants, family offices, how does that rank?

S3: 02:31

So ours, with our whole distribution team, is really done more on a geographical basis. But to rank them like that, they would be insurance companies, state and corporate pension plans, RIAs, family office groups. What I call endowments in a box are very important to us. And they obviously all range from all of our products, from real estate funds to private credit.

S2: 03:03

Great. So I'll come back to Frank. We'll look forward to hearing exactly what happened during COVID, right? How you reacted, what you did, and then what's going to stick with you. So obviously, Dan, you're the president of Dakota. Just want to give everyone just one minute on Dakota and where we spend most of our time on the public side?

S4: 03:21

Yeah. It's important for you all to know what our perspective is, right, and where we spend our time and fundraising for the collection of boutique asset managers that we have partnered with over the years. As Gui said, a majority of the assets that we have raised and retained are on the long-only side. It's a collection of seven asset managers and different asset classes. But where do we spend our time? If I were to prioritize the channels by which we've been successful in building relationships, RIAs, multifamily offices, we have focused on them since the founding of the firm back in 2006. It's a great, great end channel. It's very thoughtful. You've heard from many of those leaders in the space already today. Many more to come. We also focus very much on the platform. So think about the central research teams that are creating models, creating select lists. That's a very efficient way to cover what are very large platforms. A lot of assets for sure that are being centrally controlled. Institutional consultants, absolutely a must, right? We hear more and more about the consultants entering into the intermediary space. You have to know all the institutional consultants. And then we cover the direct channels as well, right? Those that may not be as attached in the endowments, the foundations to be sure that we're covering what we think are all of the pools of capital in the US that are qualified for what it is that we represent.

S2: 04:43

All right. So I'm going to put the question to you, Dan. And then, Frank, let's go to you. But let's go back to March of 2020. Okay? Shock to the system for us all. We all love to go to cities, right, and book out a day of meeting - okay? - and build relationships. But that was completely taken off the table, right, for quite a long period of time. Actually, it still is today. Talk to me about what you saw from a long-only perspective and how you guys reacted, the team reacted in the marketplace. And then next to you.

S4: 05:11

Yeah. I mean, obviously, it was a massive disruption to our regular day-to-day, right, and how we would otherwise communicate and interact not only with clients and prospects. And during that period of volatility, I mean, the news flow that was coming out was extreme. So what we focused on-- and it reiterated a lot of what we already knew. But it forced you to focus on your messaging, right, and being direct, being transparent and choosing your words properly, right, and the time allocation of the people that we call on, those allocators. We know they were being bombarded with emails, phone calls, and you had to make sure that your message was getting through and you were being a good steward of your message, right? So I would say it was an extreme, extreme focus on messaging and how you deliver that message. I mean, obviously, we all quickly adapted to a Zoom world. I do think that that's going to continue with us moving forward to this hybrid environment of person-to-person interactions. I don't think that's ever going to go away, thankfully. For all of us in this room, that's what we all thrive on. But at the same time, we did have to figure out how can we embrace video. How can we embrace Zoom and be really efficient and direct with our messaging?

S2: 06:31

And then Frank, on the private side - okay? - I know you pretty well, right? March of 2020, did you just shut down and not make any sales calls? Or how did you approach that situation?

S3: 06:43

Yeah. It--

S2: 06:43

And how did it go?

S3: 06:48

I'm used to being on the road three or four days a week, and our whole sales team is used to doing the same thing. So, as Gui said, it totally changes your whole perspective and how you plan your day. And you have to go about it in a different fashion. And to the point about all the information that was coming out day to day, it could be one thing one day and then totally opposite the next day. I think people felt like they were on a roller coaster ride from a news perspective. And I just sat back and thought and communicated to all of our team of don't focus on selling anything right now. Everything we do is very relationship-oriented and very focused on building the relationship over time. And I said let's just focus for the next three months on touching everybody, whether it be by Zoom or Microsoft Teams or whatever the venue. But make sure to touch everybody and use this as an opportunity to make sure you know exactly what's going on in that person's world family-wise. Just use it as a relationship building opportunity and don't focus on selling anything right now because we were-- and reality is won't get anything done anyway. So how can we take advantage of the situation? And that's really what we did.

S2: 08:10

Mark Biegel referenced that right in his opening comments, right, in the interview about giving value. All right. We started this new service. It's a public pension fund daily brief. I think a lot of you guys have seen it. We have one guy that goes out, Konch, and combs five Public Pension Fund Investment Committee meeting notes every day. He pulls in all the information out of those notes. The commitments that public funds have made in the past 18 months is mind-numbing to private investments, especially private credit. So obviously, you guys have had a lot of success during COVID. Talk to us about why. What were the dynamics that kind of affected how you behaved to actually receive those commitments and get those commitments because you obviously were pretty aggressive in the market?

S3: 08:56

So what you quickly realize is that money keeps flowing. It has to go somewhere, and you want to make sure you get in the way of it. I mean, at the end of the day, what we're all focused on is how are we going to win. This is about getting the order. But what we learn on the public pension side pretty quickly-- and we already kind of knew it going into it. But I felt like quarantine really highlighted the fact that a lot of these pension plans are really committed out and that they already know what they're doing for the year. They have a lot of re-ups going on. I mean, to your point, we were very fortunate that we had quite a few of those in position for re-ups. And we tried to play off of that and introduce new situations. But those new situations are very long-term in nature. They might not happen until early '22 or even planting a seed for another fun for '23. But just trying to be in front of it and, most importantly, stay in front of those people and have an open chain of communication.

S2: 10:06

So you'd have proactive selling all the way through COVID.

S3: 10:09

You had to.

S2: 10:09

Yeah. Relationship building obviously in the first 90 days just because there were such-- but then you never stop selling.

S3: 10:15

Correct.

S2: 10:16

Right. Got it.

S3: 10:17

I think that was the biggest surprise is the velocity of communication, the need for information, right? The people that we all call on, either our clients or our prospects, they still had a job to do, right? And what they needed to be tapped into was our current thinking of our managers, what's happening within the portfolios, and do they have in their lineup the right players on the field, right? And we, obviously, are all fighting for that position out there. So again, it goes back to the messaging. It goes back to being consistent within the communication. It's for all of us to figure out how to be persistent while at the same time not being too overly persistent in that outreach. But you heard it from a number of members of the panelists during Dakota Live in saying that, "Look. I may not be getting back to you right away, but we still need that information. We still want to see your name come through. We still want to understand what's happening in the portfolios because one thing that we always talk about Dakota is you just never know." You just never know what's going to be connecting to them based off of underlying demand within their portfolios or from their clients.

S2: 11:25

And the next?

S3: 11:26

I would add one thing too. In this post-COVID world, it's even become competitive to get on somebody's calendar for Zoom. A lot of these allocators are having six, seven, eight Zooms a day. And that's all they do is click from one to the next. So going back to that relationship, separating yourself, differentiating yourself in just that, the person on the other side, he or she wanting to interact with you on Zoom goes back to that relationship.

S2: 11:54

So, Frank, speak to how important or where you rank this. It's going to sound a little obvious. And I mean this because a lot of thought has to be given when you message an investment strategy and how you tell it. And Mimi and Shannon on their panel can discuss this as well. But how much thought, right, do you guys give to the messaging and how you're communicating how a particular manager invests? And we always just took on a life sciences strategy, which is very fascinating. The question is how are you going about that or how much thought is being given to that? And with more thought, is it getting you in the door and getting the meetings because you've given such thought to such depth for, the managers you work with, how they manage money?

S3: 12:36

I think that's got to be that's got to be-- that's got to be 1 through 10 of how you're going to put something together. How you position your strategy for how you're going to sell it, how you're going to position it within their portfolio, it's everything. Having a well-drawn-out plan of how you're going to put it together is like a business plan of how you're going to market the fund. And that's the most important thing for us. And I mean, who we're going to talk to, how it's going to fit in their portfolio, and putting other people together that have been affiliated with the manager, I mean, it's all putting people together and connecting the dots. And you can't do any of that if you don't have a comprehensive plan going into it.

S4: 13:21

And that takes preparing, right? And I hope that's a big takeaway for everybody here. I might be stating the obvious. But preparing for each of those conversations, right? If you're putting yourself in their shoes, how can you prepare your comments, your message so it's most impactful for them, right? And it just can't be-- it's not going to be one blanket comment or message you're going to put out there. It has to be tailored to those that you're reaching out to. We emphasize this with our team on a daily basis. Go out to their website. Read their bios. Go look at the white papers. It's all there. It just takes more front-end thought and probably more so than we took advantage of pre-COVID because we had that chance to be versatile in the client interaction and the prospect interaction. You can think on your feet and you can talk. But when you're competing for people's time on a Zoom calendar, you have to tailor your comments specific to them, their underlying client base so it carries more meaning.

S3: 14:16

One thing I think has been really important for us too is making sure that that overall message is consistent. In other words, how you put together your marketing materials, your presentation, your data room, how you present yourself, we spend a lot of time-- obviously, it's been on Zoom here recently. But a partner of mine, Pawan Chaturvedi, that does all of our sourcing and due diligence, he spends an enormous amount of time today on Zoom with these managers of exactly how they're going to tell their story and their message and making sure that it's very-- it's in order. It is. It's a consistent message with all of the written material. And I think that's a key factor.

S2: 14:57

Yeah. And I think in this room right here we have a ton of successful and sophisticated marketers. There's no question about that. I think what you're just kind of getting at though, both Dan and Frank, which I love is the level of preparation ahead of time, not even just about the story but of studying their underlying holdings, which a lot of times can be public, and then where you fit within those holdings and why it makes sense. So giving that level of preparation, which even gets beyond the pitchbook, right? It's like you said. It's being very, very thoughtful, which at the end of the day, I think saves an enormous amount of time for the due diligence analyst. Now, they might not agree with you all the time, right? Not saying that everyone's going to agree but being that thoughtful ahead of time, if you want to speak to that.

S3: 15:43

Absolutely. It's also a part of being really efficient with that person's time. And I think hopefully they know when they get a call from us that there has been a lot of thought and preparation that's gone into it. And we're not going to-- hopefully, after years and years of dealing with them, we know what's in their portfolio. We know what they're looking for. So, hopefully, what we're presenting to them is going to be somewhere in that strike zone. But yet we're not going to waste their time with something that's not. And hopefully that message, they understand that. And again, in the world of competing for time on Zoom or competing for their time in general, that plays into it.

S2: 16:21

All right. So that's one of the biggest takeaways I'd say bar none of today. And we've always said this is that how you treat your prospect during the buying phase and the due diligence phase really gives them insight into how you're going to behave once you become a client, right? That's what you're really getting at, right? And do I really want to deal with this person for the next [laughter] 5 to 10 years? In a way, I can really see they're not that great of-- they're not very communicative. So when performance goes down or something goes bad in the portfolio, am I getting clear communication? I think that's a--

S4: 16:52

So it's quarterly webinars. And I hope you all have some sort of repository for information whether that be a data room. We do group calls now which have become really popular for us where we're trying to be respectful and mindful of our portfolio managers' time. We've had upwards of 20 different firms on a call. Those that have familiarity, those a little less familiarity. But it's a great Q&A session with our portfolio managers. That's been--

S2: 17:20

And, Dan, spend one minute because we have about 10 minutes left just about things-- I think if there's one takeaway in terms of-- because I want to get to Q&A. In terms of trends and techniques, that one during COVID really exposed itself. Instead of doing 20 Zoom calls, you can do one and invite-- and people get to hear questions from other people.

S4: 17:39

Yeah. Because the people that were calling are the due diligence analysts. When they take that one-on-one call, there's a lot of preparation for them to get on to that call, right? So we figured out that to be connecting them to our portfolio managers, taking a little of that stress off of the front end for them to join a group of their colleagues, to be able to join and ask questions, and they can also hear what their colleagues are thinking. And a lot of times, there's a lot of consistent patterns in the thinking. So they hear those questions. They know they're on the right path here and identifying what that potential role could be for your strategy hearing it directly from the portfolio manager. That's been a great, efficient use of everybody's time.

S2: 18:20

So just to be clear, what he's referencing is at quarter end for one firm that we worked with, mid-cap growth firm, instead of doing 15 to 20 different calls, we just did 1. But we invited handpicked 15 to 20 firms and then it turned out to be a real home run and a very efficient quarter [done?].

S4: 18:34

We do it every quarter now.

S2: 18:34

Okay. So Chris, any questions from--

S1: 18:38

Yeah. There's been some questions from the audience. So I'll just rattle them off. Frank, the use of private-- the consumption of private equity, down-market RIAs, platforms, banks, your perspective.

S3: 18:54

It--

S2: 18:57

And let's say down-market just means if they're making $200 million commitment right at a state--

S3: 19:03

Right. On a minimum. Yeah.

S2: 19:03

--pension fund level just might be a little bit smaller commitment, but.

S3: 19:07

Yeah. I think the fact that-- and I'm describing it a little bit different way. On Audible, when you buy a book on tape, you listen to it. You listen to it at 1 times. You listen at 1.2 times, 1 and a half times. I think the small-- well, all of it. But the small mid-market private equity space right now is 3 times. I mean, that's how fast everything is moving right now. And for us, we've been incredibly fortunate that we've been able to have things that go over two months, three months. Certainly, things can take longer. But in this environment, a lot of these smaller, as you're describing, down-market situations, they all want what they can't have. And you're seeing a lot of normal institutional allocators that generally need to have a fund be at least 5, 6 hundred million dollars before they can participate, we're seeing them participate in a 250, 350 million-dollar fund now. And that has not been-- that has not been the case three or four years ago.

S2: 20:15

What's the genesis of that, Frank?

S3: 20:18

I think that the-- I feel like the move in the market that we've had obviously has been tremendous. And I think a lot of these allocators are looking at it as one of the few kind of inefficient still continuing to be funds that are focusing on these companies that are sub $10 million in EBITDA. I think they're looking at this as kind of one of the last few inefficient spaces out there.

S2: 20:42

So again, I think the way I--

S1: 20:43

That's good to know from the boutique standpoint. That's good. No. From a boutique standpoint, that was another question. You addressed that. Dan, to you. You've talked a lot and been very informative. Any other trends that you believe have been accelerated in a post-COVID world?

S4: 20:58

Yeah. And I'd say that to what Frank was saying as well, which is why everybody's looking for those types of strategies that can deliver very different returns, right? The search is on. We see more active management, more concentrated mandates. Those seem to be very much a trend in all of our conversations is really trying to get to that more direct expression of what it is that they're trying to factor into their portfolio either from a core satellite standpoint but really trying to drive differentiated returns. I'd also say from a delivery of that, right? So you think about different structures. We heard about UMA model delivery. That continues to accelerate. We're hearing institutional consultants talk about UMA model delivery programs because they're hearing that from their underlying clients within their OCIO businesses and working with certain wealth platforms. So if you have a strategy that ports into that kind of a format and structure, then if you have capacity to be able to take that on where you can partner with these platforms, or even the RIAs now are getting far more active in this, I tell you that's a great way as a means to drive asset flows to participate in those types of programs.

S2: 22:11

Now, we've always believed in it. But Frank, what you were just referencing there, if somebody is going to take a look at a smaller fund and not have to wait till it gets to 6 or 650, that means you have to be calling on necessarily more people and don't always handicap who might say yes or no. Make the call. Have the conversation. That's what you're getting at.

S3: 22:28

Absolutely because I think the game has changed in a post-COVID environment. I think they're looking for different avenues, and it's not their normal silos that they've been focused on for years. I think they're branching out and looking at other things.

S2: 22:45

Great, Chris?

S1: 22:47

Yeah. I'll give this one to you. The importance of video. Disseminating a message of your manager through, distinguished from Zoom, just a video explaining the strategy.

S2: 22:56

Yeah. As I always say, this industry is stuck in trading places era like in the '80s in terms of how we use information. And we typically use a PDF and an email, right, as how we follow up. Maybe some people use data rooms. Video really hasn't begun, right, to even take hold. And I would say there's one reason we've had a lot of success with video. And now, this has been a real thrill for me to be here and our team and everybody in front of all you guys. But I haven't seen you in 18 months. A lot of you have never met face-to-face. But you've seen us on video, and a lot of you have made that comment to me. It's like, "Hey, I've seen you on the Dakota Live calls." That's the exact same thing as it relates to your portfolio managers. So it is on a relative basis. It's so easy to shoot video for your PMs. The problem is we're not the ones that are shooting it. So we're not asking the right questions. Thus, the due diligence and getting the videos and they mean nothing, right? Or they're on the website and they don't get downloaded. You really want to create videos that are two to three minutes in length that are just like a meeting that they would get that question asking the exact question basically, "Please give me an overview of your firm. Please give an overview of your investment process or investment philosophy, investment process, sell discipline, portfolio construction, your team, compensation, right, your competitive advantage, your edge." And those videos get watched, and they get watched if there are-- a lot of us don't do them. So if you asked anyone, they're like, "Yeah. I'll watch it. But I mostly can't get them." It's a great leverage point also for a portfolio manager just like Zoom is for our PMs. Video ahead of time advances the conversation because then someone says, "Well, Alan, I feel like I already know you because I've watched a bunch of videos. Now, I just want to dig into some of the questions." So it kind of maybe removes that first meeting.

S1: 24:43

No more-- you guys? --

S3: 24:44

Yeah. I was just going to-- I'm just going to comment on that because Gui and I have been talking about this for a long time. But in our world, we have eight distribution people. That's all they're focused on when we take a new fund. And obviously, that new fund is not going to be appropriate for everybody. But let's just say they want to make 50 calls about it. So all of a sudden, we have 400 targets. If we can have that manager go and sit in the Dakota studio and be filmed and have several different angles of that whether different questions and answers and things like that and we could send a video to somebody that can be like our first meeting and send that out to all 400 people and then if we have 100, we have 75, those are very high quality targeted meetings and whether we get back-- hopefully, we get back sooner rather than later where we can go see those people in person. But then we have a real-- we have a group of people that we're going to have a very high target rate with. So I couldn't agree more with Gui. I think that's the way that this thing is going. And I think the people that get on the train sooner rather than later and take advantage of it are going to be that much more successful.

S2: 25:58

We're seeing a lot more people that want to come in and even shoot their quarterly webinar, right? And so you can get that face of the name versus it just being the slides. You actually see the human being talking about the portfolio. And I think it just breeds familiarity. If you talk to any of your kids - I mean, a lot of us here have kids either in high school, middle school, or college, college graduates - if they have a problem, where do they go when they want to solve something? They go to YouTube and watch a video on it. But we just haven't quite gotten there as the investment industry. Chris, I know we're coming up. We got one minute.

S1: 26:31

Yeah. No. Just to that point, Gui, I think there's a statistic you have that an email with a video attached gets opened some ridiculously high--

S2: 26:39

Two to three times the open rate is if you just include a video in your email. So just include a link to a video of your firm, your portfolio manager, two to three X the open rate. So it's definitely worth it and meaning-- so we're not here to like talk video all day, but if that's one take away when you can't get-- and we're probably in a world right now-- let's be honest. As we close, what do you think the ratio is? This is a great question for both you to close out. The ratio of PM travel pre-COVID to post-COVID knowing they can do Zoom calls.

S4: 27:16

Yeah. I'm anticipating that you're going to be able to travel and then loop in a portfolio manager via Zoom, right? So if we're going to still go out and build that relationship, be there in person, I'm anticipating the ability of being able to-- since we all have the capabilities, we know that that's being used quite broadly to be able to loop in a portfolio manager.

S2: 27:34

What I'm getting at is that there's a-- what is it? 1 to 10 that it used to be? 1 to 20?

S4: 27:37

Oh, yeah. Yeah.

S2: 27:39

Yeah. Well, there's a gap there. Video can fill the gap is my point. So what do you think? I mean, --

S3: 27:44

I think it's going to be down substantially. I think a lot of these managers look at it that they're going to get their message across. They've got a lot of the relationships already built. And your annual meeting is changed forever, I think, because I think these groups have been-- they feel like they've even been more effective online on Zoom, whatever the venue is, and they're able to actually bring in their platforms and have these CEOs talk and be interactive. Now, you do miss the networking component of it. But I think people are-- they're going to find other venues for that. So I think just summing it up, I think the manager travel will be down dramatically.

S1: 28:33

Okay. Well, great.

S2: 28:35

Well--

S1: 28:35

Well, let's conclude this panel. Dan, thank you. Gui, Frank, thank you so much for the insights. In the spirit of Bob Davis's song, the times they are changing. They sure are. I'm going to swap seats with Dan DiDomenico, and he is going to announce our next panel. Thanks, everybody.

S2: 28:51

Cool. Thanks, guys. 

S3: 28:53

Thank you.

S2: 28:54

Nice job. That's awesome. All right. Appreciate it.

You can also watch the full interview.