An insider's guide to Cap Intro: what it is, what it isn't, and how to make it work for your fund

Capital Introduction can be a key part of any manager's capital-raising activities, for new start-ups and established funds alike. But it can also be one of the most frequently misunderstood areas of the relationship between banks and hedge funds - and one of the most inefficiently used too. So how can and should hedge funds best use Cap Intro as part of their overall marketing and fund-raising efforts?

By Edgar J. Senior

Capital Introduction, or "Cap Intro", tends to attract extreme views from hedge fund managers. They range from funds that consider it such a critical element of their under-staffed marketing aEUReffort that they will threaten to end prime brokerage relationships if the CI aEURteam doesn't help them to raise more money more quickly - to those who characterise it as a complete waste of time, complaining that "CI only seems to be available when I'm performing so aEURwell that every investor wants to meet aEURme anyway".

While there's an element of truth in aEURboth of these views, each misunderstands what Cap Intro is really all about. aEURThrough four key questions, this article seeks to explain what Cap Intro is, what aEURit isn't, and how managers can use it aEURmost effectively.

Question #1: What is Cap Intro and how can it be "free"?

Cap Intro is a service that investment banks' prime brokerage arms developed in the late 1990s when they realised that many of their hedge fund clients needed help to grow to the critical mass at which they would be profitable trading and financing partners.

It has a straightforward objective: to put a bank's hedge fund clients into contact aEURwith institutional investors who have relevant appetite, so that the hedge funds can raise funds more quickly than they could do by themselves.

Beginning as little more than a series of informal networking events, Cap Intro has since grown into its own fully-fledged offering, spanning capital advisory, both large and boutique events throughout the year, multi-city roadshows, targeted introductions throughout the hedge fund lifecycle, and more.

Cap Intro teams are now often larger than PB sales teams, and the service is viewed by many managers - both start-ups and established firms - as one of the most important aspects of their PB relationships.

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