How to craft the world’s worst pitch book

By Josh Friedlander

Wed Jun 11, 2014

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“Live as if you were to die tomorrow,” said Gandhi, but it wasn’t meant as trading advice.


  
  Fraggle Rock Capital Management is not a real hedge fund offering (though it certainly sounds like one). Fraggle Rock is ™ & © The Jim Henson Company. This image has been altered from the original.

Are you wondering why allocators never call you back? Consider your pitch book. A well-crafted presentation will establish you as the thoughtful, deliberate, well-documented, humble, overtrained, replicable alpha generator that you sometime are. But pitch book promoters are prone to pitfalls. If you've committed any of the ensuing blunders of style or substance, you're well on your way to being a hated part of an investor's day.

"Our team has 100 years of combined industry experience"

Really? Those five guys watching Gunsmoke reruns in the nursing home have 350 years, but I'm not going to hire them to trade rates. I'll take Chase Coleman's short, but profitable, career over your 100 years.

"Our strategy would only have lost 2% during the…" Asian financial crises/dot com bust/cancellation of Seinfeld

Those are some fantastic theoretical pre-inception returns. Quants love this, because they would never (never!) have altered their models during a crisis. Quant or not, guess what? I totally would have been unscratched in that car accident if I had been driving the tank I designed after I was in that car accident. Now what are your real audited performance figures? (See also the not uncommon "I strung together a trading record from three separate firms, but only the strategies that worked, and came up with this wonderful net annualized return for a theoretical magical Unicorn-like strategy that I'm trying to sell you" technique.)

We have macro hedges to protect against tail risk

You don't say? Well, thank goodness for that, because you're my only investment! It's not like I hired you to invest in merger arbitrage or something. I am excited that you can fritter away capital buying out-of-the-money puts on the S&P 500, vaguely related inverse-ETFs, or CDS on European sovereign debt. I never would have thought of that. While you're at it, perhaps you can hold a large cash position. And make sure it's all your cash, because maybe you shouldn't be raising money for a specific strategy if you don't think the near-term environment for that strategy looks promising.

I have so much "experience," you won't find it all on my bio (but it is on FINRA)

All those mumble phrases about 20 years of this and several senior roles, but there are no dates or titles or firms mentioned. Is it really so bad that you started out selling variable annuities at "J.T. Marlin"? If you're going to try hiding that, what else will you hide?

I'm an expert at something very complicated

Do you employ "Bayesian analysis"? Are you obsessed with the study of derivative statistics to justify weird arbitrage strategies? Do you consider money management a type of Dungeons and Dragons game that pits you against everyone else who never left his basement in high school? Hold on a second while I grab a T-1 calculator. I'll be right back…

You named yourself after what?

I'm glad you chose to name your firm "Fraggle Rock Capital Management" because the Fraggles were such fun-loving explorers. And the Power of Greyskull Fund offers exceptional risk/reward, especially in its gold-denominated Rainbow Brite share class. Please use an entire page in your presentation to explain why choosing this name was the consummation of a lifelong ambition. Actually, please don't.

I'm running a liquid equity strategy but I may stick your money in a highly illiquid side pocket

Obviously, at 30-something, you're already a master of both public and private investing. Why should you be constrained from buying a Brazilian vuvuzela factory? Next you'll start a reinsurance company, buy a sports team, and hire a vintner to distill the cultural essence of your firm into a 70/30 cab-merlot blend. This fund includes sulfites.

I'm "opportunistic"

How'd that line work on your ex? Who isn't opportunistic? Is that the same as flighty, or are you saying I should pay you to sit around and wait for fat pitches?

On my desk there's a Bloomberg and a Bartlett's

To err is human; to forgive, divine, but it's hard to forgive the flagrant abuse of famous quotations to demonstrate a shallow erudition. Remember that whenever you find yourself on the side of the majority, it is time to pause and reflect. Life is what happens while…I'm busy reading your pitch book. Time is money. Look before you leap, though he who hesitates is lost. Be the change that you wish to see in the world, and please don't quote Gandhi in your hedge fund pitch book.

Josh Friedlander is the editor of Absolute Return, and reads a great many awful pitch books.

ISSN: 2151-1845 / CDC10004H