- November 1, 2016; Vol. 3, Number 11

Southern Exposure: Storytelling Hatteras Funds CEO David Perkins is getting a second bite at the apple

by Mike Consol

People’s lives are motivated by one of two things — inspiration or desperation. David Perkins, the author of that sentiment, is well acquainted with both. The founder and CEO of Hatteras Funds can recall the desperation of going to his knees and praying for manna from heaven, as well as the inspiration of realizing what he wanted to do with the rest of his life, the humiliation of living in an in-law’s mobile home, and the exhilaration of selling his company for $40 million, only to watch the buyer run his crowning professional achievement into the ground.

Perkins, who recounts these adventures story by story in a sugar-cured southern drawl, is back at the helm of Hatteras Funds after buying back the firm for a trifling $5.5 million with a renewed vision and a fresh dose of that life-affirming inspiration.

The North Carolina native has a taste for alternative asset classes, private equity and illiquidity premiums, and he envisions bringing a package of plug-and-play solutions to market that will give financial advisers a simplified means for delivering endowment-model portfolios to their clients. That is the plan, anyway, and Perkins could not be speaking about its prospects with any more relish than if a fellow Tar Heel had just set a heaping platter of Carolina-style pulled pork on his desk.


It was desperation that got Perkins (“Perk” to his friends and cohorts) interested in the financial services business. He was living in Charlotte at the time and his wife had just declared herself pregnant with the couple’s first child. Alas, there were some complications with the gestating life within, and that required she quit her job and convalesce — a startling prospect, both because of the human life and the fact that fairer Perkins was bringing home the lion’s share of their $100,000 in household income. Compounding the couple’s stress was the recent purchase of a new home and an outflow of cash averaging $120,000 a year.

“I got down on my hands and knees and I prayed to God to lead me in the right direction,” Perkins, a devout man of faith, recalls.

A couple of weeks later he walked into a bookstore, and in the very back he found a book titled, No experience necessary, make $100,000 a year as a stockbroker. When he returned home the exchange with his wife went like so …

I know what I want to do. I want to be a stockbroker.

What do they do?

I don’t know, but they make $100,000 a year.

Perkins subsequently called everyone he knew or trusted in Charlotte and they all told him roughly the same thing: wrong school, wrong grammar, wrong clothes, wrong family.

“Guys like you don’t make it in that business,” one of the naysayers asserted.

That might have been a splendid time to throw in the towel, but Perkins persevered and eventually convinced PaineWebber to hire him. Fate must have had something else in mind, though, because Perkins’ start date was Monday, Oct. 19, 1987, forevermore known in financial circles as Black Monday, the day the Dow swooned by 508 points, traumatizing the investment community.

“Son,” Perkins was told by one of the PaineWebber people in charge, “we have got an austerity program.”

“An austerity program?” Perkins said. “What’s that?”

“We ain’t hiring anybody,” came the rejoinder.

Perkins did not get the assignment that day, but his pursuit of a job in the business remained dogged, even as his increasingly dire fiscal situation forced him to relocate the family north to Raleigh, closer to his wife’s family, where they took up residence in his father-in-law’s trailer. Perkins was too embarrassed to tell anybody about his living situation, even as he commuted 90 minutes morning and evening. Despite the long drive, he was first in the office every morning and the last to leave every night. His destination each day was a securities brokerage named Interstate/Johnson Lane (since acquired by Wachovia, which was in turn acquired by Wells Fargo).

The stock brokerage paid him $2,000 a month for just the first two months, after which he was paid strictly commission, and that meant coming home with a monthly check of $250.

“I remember walking in the door and my wife Sheila said ‘Good god, what is this?’”

“That’s my paycheck.”

“What are we going to do?”

“I don’t know; we’ll have to figure it out.”

The bill collectors were already calling the Perkins’ residence.

Fate intervened again when a colleague placed a copy of Registered Representative on his desk. That particular issue of the magazine touted a feature about “million-dollar producers,” and Perkins talked with members of that list and, to his surprise, every one of them lent him their ears and feedback.

“I don’t know why people have always been so nice to me,” he says, “but when I asked them if you could start over again, what would you do?  They all said the same thing — investment consulting, investment policy, asset allocation, manager search and selection, quarterly performance reviews.”

It was about that time that a co-worker named Fielding Miller offered to buy Perkins lunch. They started talking about some shared visions they had regarding the consulting business. Soon, they were starting from scratch what would be called CAPTRUST Financial Advisors, an independent financial advisory firm.

“It was amazing,” he says. “If you called enough people you’re going to find money in motion, and they didn’t care how much you knew about retirement plans or investment management, they just wanted somebody to listen to them and make their problems go away.”

Perkins knew enough about the business to accomplish that, and he picked up accounts one-by-one by cold calling prospects. When people asked about his production level, Perkins gave them an aspirational reply: “I’m a million-dollar producer who is just getting started.”

“I’d only been there a few months, but isn’t it amazing in life when you get a good partner,” Perkins says. “You just don’t want to let them down and Fielding and I pushed each other so hard. We worked almost every Sunday night planning the next week. We realized we had to systematize every single thing we do, and we did.”

Today, CAPTRUST Financial Advisors, still run by Fielding Miller, has offices in 15 states and manages more than $180 billion in client assets.

“It all started with an idea and some shared interest and two guys who didn’t want to let each other down,” he says.

The experience taught Perkins that building an organization was what vivified his heart and mind. After the CAPTRUST ride peaked, the excitement faded and he realized he needed “another dragon to slay.”

That next dragon would take the form of Hatteras Funds, “and boy did I have a lot of fun building this thing.”

Perkins was not interested in another “me-too” fund management firm. He wanted something distinct, and his notion for Hatteras Funds was to provide alternative investments to financial advisers and their clients, with complete transparency and a commitment to telling the client the truth, even when the news was not good.

Financially, Perkins did not have the resources to swing the plan into action on his own; he needed a joint venture partner, and for that he turned to Mark Yusko, an investment pro who later started Morgan Creek Capital Management.

And then the financial crisis hit. During first quarter 2008, Perkins and his team went out to take the temperature of advisers and investors. What they heard repeatedly was that they liked alternatives for their ability to mitigate risk, but liquidity was essential. It became clear to Perkins the market wanted alternative investments in a mutual fund format.

The problem was Hatteras had no such option in its lineup of funds, but he knew of a group named AIP that did. AIP was a multi-strategy, multi-manager purveyor of mutual funds. Perkins brokered the acquisition to better position Hatteras to fulfill client preferences.

The phones at Hatteras started ringing with renewed vigor as the liquid alternatives space indeed proved to be popular.

Hatteras caught fire with advisers and investors. The venture was so successful it captured the interest of Realty Capital Securities. By Perkins account, he got a telephone call from the brass at RCS and they made clear their intention to buy Hatteras. Perkins said he was not interested, but agreed to meet with them and let them make their case. A sketch of the ensuing conversation unfolded like so, starting with RCS officials …

Perk, you know why we’re here, don’t you?

No, tell me.

We want to buy your company.

Well, I’m not sure I want to sell it.

I’ll pay you too much.

I like the way you’re thinking.

Give me a number.

I’m not going to give you a number. You would out-negotiate me on my best day. I’m just an ol’ country boy from North Carolina.

Well, think about it and give me a number.

Perkins turned for guidance to friend Ted Gooden at Berkshire Capital, who agreed to work the numbers and come back with a valuation for Hatteras. When the original number was offered, Perkins RCS counterpart said, “I’m not sure I can get to that number.”

“I said, ‘Well, here’s what I think. Let’s do this: $30 million up front, $10 million in some anniversary payments, and two different earn-out pieces that could be another $40 to $50 million.”

That put the total potential value of the deal at a whopping $80 million to $90 million. Perkins was not done, though. He added some stipulations, telling RCS: “We are going to run this company autonomously, we are going to have one P&L and if you guys don’t let me make the decisions, there’s going to be a liquidating damages clause, and that liquidating damages clause says if I don’t agree with things that you make me do, then you have to pay us $50 million. If I have to move and not live in North Carolina, you pay $50 million dollars. If you come in and fire two people on my management team, you owe me $50 million.”

Astonishingly, Perkins says RCS agreed to the terms. The deal was announced in 2013 and closed in June 2014.

Suddenly, Perkins was not worried about paying his bills, and he was not on his knees praying for divine intervention anymore. His prayers had been answered far beyond what he had ever requested — or so he thought.


The terms of the deal with RCS was $30 million up front, with milestone payments of $3 million on the first anniversary, $3 million on the second anniversary, and $4 million on the third anniversary. Things never got that far, though. A mere four months after the deal closed, RCS was having serious financial and regulatory problems. What’s more, Perkins started to realize that the RCS business model was starkly different than the culture at Hatteras.

“We got away from our core business model,” he says. “Our business model has always been a provider of unique alternative investment solutions, we are not investment managers, we are not a third–party marketing company. We got into a wholesale distribution model. That’s not us.  We cannot out-BlackRock BlackRock. They will knock you out. They’re too big!”

The shared vision of Hatteras and RCS was to grow distribution, which resulted in an expansion of the sales team from just four people to 70 in short order. Perkins complains that the funds started being managed for capacity rather than performance.

“It didn’t take a Chicago Business School graduate to figure out that if these guys didn’t start bringing in more sales something bad is going to happen,” Perkins says. “When the scandal came out that someone had cheated or lied about some of the financials at RCS, that was the beginning of the end. Sales dried up.”

When the great unraveling commenced, RCS officials realized they were facing too many challenges to properly handle Hatteras, so they agreed to a $5.5 million buyback offer from Perkins. Though Perkins got back his firm in January 2016 for a fraction of what RCS paid, Hatteras was now in a diminished state. The first thing Perkins did was work on bringing back its office culture, which he defines as “treat everybody the way you want to be treated.”

“Treat people like adults,” he says. “I don’t have a start time here. If you want to take two hours for lunch, I don’t really care. You have a certain responsibility to get your stuff done. When you treat people like adults, boy, they respond.”

That attitude was not shared by RCS leadership, who scheduled Sunday night meetings.

“Spouses tend not to like that a whole lot,” Perkins says. “I don’t want Hatteras to be the most important thing for my employees and partners; I want their families to be. I want Hatteras to be important and I want them to love us, but I don’t want it to be the main thing in their lives.”

There was also the problem of being drastically over-staffed. Perkins had to take the expanded organization from about 60 employees down to 28, and he needed to make sure he had the right people on the bus. He “hand selected” 15 key people whom he made equity owners in the organization. Perkins and his reformulated team recognized that a void existed in private equity and saw an opportunity to give the average millionaire and their financial advisers access and a better experience — this time with illiquid funds.

In the process, Perkins says he “got excited again.”

A long search ensued for the right partner. A deal was struck with Chicago-based Adams Street Partners to serve as subadviser to Hatteras’ private equity fund.


The first new fund offered by the reconstituted Hatteras will be a private equity portfolio, followed by a private real estate fund, a private energy and natural resources fund, and a private credit fund — all by the end of 2017. All of the funds will be evergreen, meaning investors can either take their distributions or reinvest those gains.

Perkins overarching philosophy is that any investor needs to have a plan that will stand the test of time.

“The plan is more important than your investments,” he says, “because if you do not have a plan, you will become emotional, and emotional investors become poor investors in a hurry.”

Too often people get caught up in day-to-day or month-to-month market performance, says Perkins. That, in part, explains why so many investors, regardless of time horizon, have an aversion to illiquid assets.

“When you tell someonedon’t do something it just really motivates them to do exactly what you’re asking them not to do,” he says. “Certain people can’t understand illiquidity and they think they can capture the illiquidity premium through a liquid vehicle. That’s ridiculous. If you can’t live with the illiquidity, stay home. It’s okay, but don’t go to that dance knowing that you’re going to get emotional and want your money back. If you do, you’re going to take a haircut and there will be people like us who would love to meet you in the secondary market.”

But aversion to illiquid private equity is not something Perkins is inclined to let investors shy away from.

“I love to get people thinking outside of their comfort zone,” he says.

He invokes the memory of IBM founder Thomas Watson, who said the company succeeded because he knew what IBM was going to look like when he started. Perkins used that as a segue to discussing the problem of financial advisers who have difficulty understanding what client portfolios should look like when they are done.

“It ought to look like an endowment or foundation,” he comments.

But creating an endowment-style portfolio is complicated, Perkins says, so his firm has created what he believes to be a plug-and-play solution that financial advisers can use as the private equity component of their clients’ portfolios. Ultimately, he wants Hatteras to be a plug-and-play platform of funds that allows advisers to assign investor dollars to various asset strategies of private investments.


Given the right suitor, would Perkins sell his firm a second time?

“Everybody has a number,” he says. “Nobody is going to hit my number right now. Right now it’s not about the money, it’s about doing something special. It’s about being around people that you enjoy being around. I’m having the time of my life again and this time I know it.”

Mike Consol ( is editor of Real Assets Adviser.

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