Thursday, September 24, 2009

Mr. hedge fund goes to Washington

BusinessWeek observes that hedge funds are increasingly turning to think tanks, political analysts and lobbying firms to gauge how political forces and legislation might affect the private sector. Particularly for sectors like insurance, health care, and energy, what transpires in Washington will affect those companies' financial fortunes.

While this is not "big news," it does demonstrate the extent to which politics have become entwined with the economy. Bringing expert political analysis into the investment decision-making process seems only sensible. It is part of developing a mature outside-in perspective that any enterprise needs to thrive.

With new perspective on political risk, hedge funds might be able to develop keen insight into the winners and losers in regulated sectors. Taking that assumption a step further, hedge funds might become more vocal on policy issues.

For hedge funds that see business value in shaping the debate in Washington, media will become an important tool and they will find that the media will listen. Independent voices in the private sector are too few and far between these days and the media will welcome institutional investors' view on policy matters.

Tuesday, September 15, 2009

If it quacks...

In virtually every meeting I have had with communications and marketing people in the financial industry this year, they each say that their institutions are different from their peers. It makes sense, because from hedge funds, to banks, to insurance, companies are trying to distance themselves from their troubled industry segments. I am not sure that it is working, though.

Here are some examples:

"Our investment process is different from that of other quantitative hedge fund." - Hedge fund marketing executive.

"Media don't understand that mutual insurance companies are more financially sound than traded firms." -- Insurance industry communications officer.

"We don't consider ourselves to be in the same tier as those other firms." - Communications director at a leading independent advisory firm.

"Our business model is different from other private equity firms." - Communications VP at a major PE firm.

Here's the catch, the natural tendency media, client prospects and the general public is to group businesses into tiers and categories. Each of those groupings has its own identity -- for better or for worse. It is extremely difficult to differentiate a firm within its group, much less shed the group identity.

So, a quant fund is a quant fund. A private equity firm is a PE firm and even the most storied independent M&A firm is just that -- not Goldman Sachs, not a specialized boutique, but one of the handful of firms in between. If it quacks like a duck, for most of the world, it is a duck. The only question is is it a big, medium or small duck.

So, how does a firm change it spots (sorry for mixing metaphors)? Not easy. In practice, it's less about standing out in the traditional category than creating a new category all together. It requires aggressively walking the walk and talking the talk. From business model to corporate culture, to marketing, everything needs to be rebranded and reinvented.

It doesn't stop there. CEOs committed to changing the paradigm of how they are perceived need to speak out about controversial industry practices and take the lead in embracing sensible regulation among other initiatives designed to set the company apart from firms that would otherwise be considered peers.

The process can take years and it involves risk. However, if there ever was a time to "think different" as Apple (one of the few companies that defy categorization) used to say, it is now. For hedge funds, banks, and private equity firms facing regulation and government officials hopped up on populist backlash, the stakes could not be higher.

No time to waste. Get quacking!