Building structural capital in the fund business

1. Ten Valuable Insights on Structuring
Your Fund by Robert Vinall
IAN CASSEL JUNE 19, 2017
Even though I don’t manage other peoples’ money, I’m certain the hardest part isn’t
finding the right investments, it’s finding the right investors. From time to time I get
asked questions from aspiring or emerging fund managers. I normally point them to
other managers (sometimes literally and sometimes to their investor letters) that I
think have high integrity that also have a track record of success. One of those
individuals is Robert Vinall.
Robert Vinall of RV Capital manages his Business Owner TGV Hedge Fund
registered in Germany. Admittedly, I’ve always been a bit biased towards Robert
Vinall because our investment philosophies are quite similar. He operates a long-
term oriented concentrated strategy with the three largest positions making up 50%
of his fund. Vinall sums up his investment philosophy, “The name – Business Owner
– reflects the philosophy of investing like an owner in businesses run by an engaged
and rational owner with the capital of investors who think like an owner.”
Earlier this year Robert held his RV Capital Emerging Manager Day where investors
and stakeholders come in to share ideas, thoughts, and ask questions. Vinall gives
ten valuable insights to emerging managers on what to think about when starting
their fund. I’ve listed the ten insights below.
1. Get the structure of your business right on Day 1. On Day 2 it’s too late.
The structure of the fund has to fit the strategy. If you are a stock picker, you
have to have a fund structure that allows you to pick stocks.
2. Don’t waste time marketing. Focus on generating a great track record, and the
right people will find you.
3. Keep costs ultra-low. Too many young managers get a fancy office, hire an
analyst, etc. It’s hard to be patient when you have an enormous amount of
fixed expenses.
4. Avoid giving a large percentage of their GP to a promoter to attract capital.
It creates a bad incentive system. Vinall was very influenced by David Swenson
(Yale Endowment Fund), and if Swenson sees a bad fund ownership structure,
he avoids investing.
5. Communicate as openly and as transparently as possible with your
investors. Vinall says that the idea of being open and communicative wasn’t
normal when he started in 2006. He is communicative for three reasons: First,
there is obviously a financial component with investors where they want a good

2. return, but they also want a good emotional experience (feel relaxed and
assured). The only way to give the latter is to consistently and openly explain to
investors what you are doing and why. Second, being open and communicative
about your positions helps provide transparency with your performance (no “black
box”). Third, in the internet age, sharing your investor letters and thoughts helps
expand your network of likeminded investors, which is a real asset.
6. You want to get your investors to self-select. If you lay out your philosophy in
a transparent way, you attract the right people. When you are doing things the
right way and you are attracting the right investors, they tell their friends which
normally have similar expectations and time horizons. “It’s an amazing flywheel
effect.”
7. You have to say No to the wrong type of investor. If you are long-term, don’t
accept short-term capital.
8. Seek responsibility. If you want to be your own boss and make the decisions
then embrace the responsibility and authority as the decision maker.
9. You need to think of your fund as a business. Analyze your own fund like you
would a business you invest in. You want to create a moat around your business.
You want to find a structure and investors that allow you to invest for the long-
term. This is your moat.
10.Seek great partners (partners = investors). It’s amazing how great partners
can really help you. When you are doing things the right way they provide
encouragement and they also challenge you. When you’re challenged you often
find areas that you can do better.