Section Three: Making your Case
This section provides the tactical information and data that allows potential investors to fully understand how you’ve built and manage your portfolio. It includes investment guidelines, a current breakdown of the portfolio, and a comprehensive look at your approach to risk management.
On this slide, you’ll explain the targets and guidelines used to construct your portfolio. It’s the blueprint you follow when investing that provides a clear overview of the portfolio’s structure. Key statistics to include are:
- number of positions (usually an acceptable range),
- target gross and net exposure, position sizing, position limits,
- expected holding periods,
- other info that describes the technical aspects of your investment approach.
Now that you’ve laid out how you’ve built your portfolio, it’s time to share the details. The Portfolio Characteristics slide provides a statistical breakdown of your current portfolio - the information investors need to understand how you’ve deployed capital. These stats should include number of holdings, top 10 long/short holdings, sector and regional allocations, average market cap, and any other details needed to describe the contents of your portfolio.
The Risk Management portion of your Pitchbook can be divided into two sections – Portfolio Risk and Operational Risk.
Portfolio Risk describes the general risk management guardrails deployed at the portfolio management level. This includes maximum position sizes, industry exposure, losses per position, and your approach to hedging. It can also include concentration limitations and an overview of internal stress testing.
Operational Risk describes the firmwide steps your organization takes to mitigate risk. This includes overviews of relevant firmwide policies and formal procedures such as disaster recovery policies, business continuity plans and a code of ethics. Administrative risk controls should also be outlined here. This includes pricing and valuation policies, trade, position and cash reconciliations, relationships with regulators, and a list of the service providers who support the day-to-day operations of your fund.
Tip: The slides in section three are full of quantitative, straightforward information. As a result, they tend to be a bit dry visually. Working with a professional designer to create easy-to-read tables, engaging charts, and attractive graphics will help readers better navigate these slides.
Section Four: Your Closing Argument
Now that you’ve provided a full rundown of your firm, investment strategy, and portfolio, it’s time to make your closing argument. This section demonstrates how your strategy has performed in the real-world and provides potential investors with any additional information they’ll need to invest.
Whether you have a long and distinguished track record or you’re just getting started, you’ll want to provide potential investors with an indicator of how well your strategy has performed against its respective benchmark. At a minimum, a six-month view of monthly, annual, and YTD returns since inception should be provided. If the information is available, you can also include performance since inception, indexed to $100 to show the growth of a potential investment over time. All performance numbers should be audited by a third party if possible.
Tip: If you don’t have a performance history, backtested, hypothetical performance may be included, provided it’s properly disclosed (always discuss this with your legal/compliance support).
The Summary Terms slide is arguably the simplest, yet important slide in your pitchbook. It provides the practical information investors need to know before investing in your fund. It should include:
- the Investment Manager’s full legal name,
- management and incentive fee information,
- minimum investment amounts,
- lockup information,
- liquidity terms,
- indicate whether there’s a high-water mark,
- list of service providers supporting the operations of the fund.
The Contact Us page is another straightforward slide investors have come to expect in standard hedge fund pitchbooks. It should include names, email addresses, and phone numbers of key client relations and/or business development personnel, along with general contact information for the firm.
In many ways, the Appendix is the biggest mystery among our clients. There’s plenty of debate on what should and shouldn’t be included. A good rule of thumb is that this section should be used for any qualitative or quantitative information that supports the central investment thesis you’ve laid out in the pitchbook and add color to your overall story. If there is any doubt whether a piece of information is needed to move your story forward, you likely don’t need it.
Trade examples, case studies, representative investments, macroeconomic data, and any other information to advance your thesis can be included. On the qualitative side, this is the place for org charts, and full bios for executive leadership, the investment team, and advisors.
What About Section Dividers?
Before we wrap things up for this week, let’s take a minute to discuss Section Divider slides. These are the simple, image-heavy slides used to let the reader know you’re moving on to a different topic in the presentation. While they can be useful for larger presentations, we see fewer clients requesting them. We no longer recommend adding them to presentations as they serve little purpose and add “weight” to the final product. Alternatively, consider adding an unobtrusive “index” to the header or footer of each slide that indicates your position in the pitchbook.
Up Next: the final installment of our series on practical design tips and PowerPoint tricks to make sure you’re getting the most out of your pitchbook. Don’t forget you can revisit the qualitative elements of the pitchbook in the first installment of our series at any time on our blog.