Sunday, June 28, 2009

Getting serious about hedge fund marketing

Hedge funds are marketing harder than ever and fewer investors are listening. Investors report fielding more phone calls and receiving more marketing literature from fund managers and are taking steps to limit the deluge. At the recently concluded GAIM conference, for example, in order to avoid being badgered by funds on the hunt for new cash, one family trust manager had cards printed without phone or email information.

What do hedge funds have to do to be effective at fundraising in this environment? Hedge Lines recently spoke about the challenge with two asset management professionals. Not surprisingly, many of the keys fundraising hinge on effective communication with investors and other influential parties. Here is some insight:

It's the strategy, stupid. Hedge funds need to understand that smart investors buy into strategy, not simply performance. "The key is for the manager to show conviction in his or her ability to manage money," said author Daniel Strachman. "They need to be able to communicate how they actual put a trade on and why. Performance is important but conviction in one's strategy is more important and ability to communicate why the strategy works is most important. If it was me, this is what I would be talking about all day and all night."

Don't hide losses, explain losses. "Funds need to communicate in the big picture what happened, not just the number," advises investment professional Andrew Tilzer. He says that funds need to be clear about the time horizon they use and their peer group to put performance in context for investors. "If I was down 10%, 20% or more or less, the story would not be the returns it would be the strategy and why it failed," said Strachman. Document strategy with proof of your real-time thinking, like investor letters, to show consistency and conviction, adds Tilzer.

Invest in relationships. "Too many hedge funds don't truly know why their existing clients came to them and how they appeal to different classes of investors," said Tilzer. "To raise new assets, it is important for funds to have the patience to learn what existing LPs like about them and what prospective clients need." This outside-in perspective helps define what makes a fund unique and gives the fund insight about the niche they fill in the market that they can use to further differentiate themselves.

Leave marketing to marketing people. The Reuters story cited above noted that more managers attended this year's conference in person, as opposed to sending marketing staff. This is a worrisome trend and PMs need to resist the urge to be personally responsible for marketing. "There is a difference between being a portfolio manager and a business manager," explains Tilzer. "To be efficient, the manager has to respect the back office."

Don't hang up on the media. "The idea that hedge funds don't want to talk to the press is lunacy. It is also lunacy to think that talking to the press will help raise money - directly. Indirectly, however, talking to the press is a good thing because it provides third party credibility," notes Strachman. Too many funds are disengaging from the media process and the industry needs to resist that instinct. Quantitative and activist strategies are among those currently out of favor. Managers in those sectors, for example, need to use the media to promote the investment case for their specialties.

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