Capital Raising Education Series: Part 2 | Featuring: Excelsior Investment Advisors (Carl Friedrich, CIO, and Steve Perrino, COO)
What this video covers: A deep look at how sophisticated allocators actually evaluate funds, from the investment analysis frameworks they use to the operational red flags that have cost managers capital in the real world.
Investment Due Diligence: The What, Where, and How
Allocators examine your fund through three lenses. What do you trade? And, does your actual positioning match your stated mandate? Where did the team come from? What prior experience validates your ability to execute this strategy? And how have you performed, not just in good markets, but during stress periods?
Performance review goes far beyond return tables. Serious allocators apply stress period analysis, rolling time window analysis, and conditional correlation testing. A fund showing a 0.5 correlation to the S&P 500 overall may show a 0.75 or higher correlation during sharp drawdowns, a critical distinction for portfolio construction. Know your numbers before an allocator finds them for you.
Track record length is not automatically an advantage. If your early performance was driven by suppressed AUM levels, a rigorous allocator will adjust for that. Understand your own performance history deeply, including its limitations.
Operational Due Diligence: Infrastructure Under the Microscope
Operational due diligence examines your fund documents, organizational structure, service providers, compliance framework, valuation policy, technology infrastructure, and business continuity planning. It is not a formality, it is designed to find what managers would rather not reveal.
The Deficiencies that Kill Allocations
These are real patterns drawn from due diligence experience:
- Conflicts of interest: shared staff with related entities, undisclosed affiliations
- Misrepresented credentials: background checks are standard. One inaccuracy ends the conversation
- Sudden leadership turnover: replacing CFO, COO, and CCO simultaneously signals instability
- Weak valuation policy: single-broker quotes or manager-selected pricing are not acceptable
- Poor business continuity: server backups stored in the same room, no documented recovery time
- Inadequate segregation of duties: even a two-person shop can achieve this through third-party providers
How to Prepare
Complete a mock ODD review before approaching serious capital sources. Build policies and procedures by committee. Know your vendors better than the examiner does. Run mock interviews with staff so your team gives consistent answers. And read your own fund documents, know what they say about expenses, gating, concentration limits, and side pockets.
If this video raised questions about how any of these topics apply to your fund, Steve Vlasak is happy to help. You can contact Steve directly at svlasak@richeymay.com.
Dive into the other topics in this Capital Raising Education series:
- Part 1: Rule 506(b) vs. 506(c) — Which One Is Right for You?
- Part 3: Considerations for IRA Investment into Fund Structures
- Part 4: What to Do With Investor Contacts — A Look Into CRM
- Part 5: Updating Your Marketing Toolkit
- Part 6: The Perfect Pitchbook
- Part 7: Contributed Securities
- Part 8: Rule 506(b) vs. 506(c) — A Legal Deep Dive
- Part 9: The Human Edge in Capital Raising
