Insider Advice On How To Find International Investors by Serge Pustelnik
All fund managers want to reach international investors, but they rarely know how to find them. In today’s global economy, few firms can survive solely with the US investor and must expand their operations overseas.
Earlier this year, Asia-Pacific passed North America as the region with the largest group of High Net Worth individuals, according to the 2015 World Wealth Report. The report says the rapid expansion of emerging economies is contributing to this massive wealth build-up overseas.
So how do you reach these elusive investors in a country that is foreign in language, culture and business?
Over the last 15 years, I have helped fund managers, investment banks, entrepreneurs and asset management firms identify, locate and sell to institutional and accredited investors throughout Asia, Europe and Eastern Europe.
As every fund manager knows, reaching foreign investors is difficult, but here are five business approaches I have honed to find and reach the untapped foreign investor.
Start with local banks in the foreign market and hook them with incentives
The local bank in every country is the crucial connector with high asset holders. Any fund or business going after international investors must establish relationships with account managers and appeal to their self-interest by explaining why they will make more money with this new deal.
Many foreign markets have underdeveloped financial services, and the services tend to be offered by one type of institution – the bank. Most foreign investors have local business interests and are actively involved with their bankers. Thus, the local banks have access to elusive high-net-worth investors, have working financial relationships with them, and are a perfect conduit for selling your investment or making introductions.
However, in the banker’s mind, a dollar invested outside of the bank is a dollar not deposited. This is why it is important to incentivize the bank by convincing them that for every dollar their clients invest with you, the bank will earn more money than it would if they kept their assets in the bank. In simple terms, appeal to their self-interest. You can accomplish this by identifying the spread between deposit and lending rates for a particular country. The smaller the spread, the less of an incentive the bank will need to introduce their clients to you. Countries with very low or even negative interest rates may be attractive. Such countries include Japan, Switzerland, Sweden, Denmark, and Israel.
Create a Roadshow or Seminar in their Language
This is typically where the deal falls apart because of cultural nuances and an information gap. For example, a business plan for a restaurant that compensates workers through gratuities is easily understandable in the U.S., but in Japan, where tipping is uncustomary and impolite, it might need further elaboration.
Make sure the presentations are in both English and the local language. You need to scrutinize the local translation more than the polished English one. Hire independent and separate editors and translators to recheck your editors’ and translators’ work. Also, think of local analogies to your business. Don’t think about the products, but the principles involved. For example, when selling a fund that is trading carbon futures on an exchange, analogize to trading deep-sea fishing permits at industry meetings in maritime countries.
Investors care about your address and it impresses them when they recognize a name like Wall Street. Famous areas or buildings carry a lot of weight with international investors. Information on neighborhood, local trends takes longer to permeate international boundaries. A creative startup in Brooklyn might be prestigious and signal innovation to New York investors, but to investors in Dubai, this might scare them away.
Address matters most in the financial sector. When investors look at a financial firm and do not see a Wall Street address, their impression of the firm will immediately drop. U.S. streets and landmarks are among the most well known world-wide and with the inexpensive availability of office sharing, address sharing, and other tools that provide a recognizable address, there is no need to relocate operations.
A note of caution: the recognizable address should match the industry. I once introduced a hedge fund running some of the most sophisticated statistical arbitrage strategies in equity markets to a large financial institution in Moscow to help expand their investor base. Although the fund had a wonderful, beautiful, and prestigious office on Fifth Avenue in New York, the Muscovites were under the impression that the fund invests in fashion and high-end retail industries.
NGOs, Chambers of Commerce, industry groups, professional associations, etc., provide access to international investors via their large partner networks that collect data. Funds or firms should specifically search for NGOs with a strong presence in the country they are targeting and look for NGOs with a long history in that country.
Investors in foreign countries tend primarily to be the business leaders in their country. Partnering with these organizations will provide access to their members and interacting with them through an allied organization plants the seeds of trustworthiness. Instead of being looked at as cowboy outsiders offering some flashy investment, investors will look at you as a legitimate foreign partner.
If you are targeting investors in emerging economies, NGOs are the allies you need. NGOs tend to know which players are large in each industry and what they are interested in. They have networks in many countries as well. An NGO trying to improve infrastructure in Sudan may bring investors from France. Funds or firms should specifically look for NGOs with a strong presence and long history in the country they are targeting.
Be Industry Specific
Most firms looking for international investors search too broadly, targeting people with the most money. If you are a real estate agency looking for international investors for development projects, target international law firms who are struggling to provide options for their clients. Likewise, hedge fund managers should target admins.
There is a dramatic amount of opportunity in emerging markets. It’s natural that firms are searching for investors overseas, but that brings new challenges. However if there is a thoughtful plan in place and these investors are strategically targeted, they are absolutely attainable.
About the Author:
Serge Pustelnik is currently studying international law at Harvard and is also a legal fellow at New Markets Lab in Washington, DC. He identifies alliances and coordinates projects with NGOs, nonprofits, local governments, foreign investors and local entrepreneurs. As Managing Director at Genesis Securities and then Lek Securities in New York, he identified institutional and international investors and introduced them to the firms. At Genesis Securities he created the firm’s institutional sales desk and oversaw the launch of international offices in China and Ukraine.