I recently stumbled upon a new survey of what institutional investors look for in their hedge fund managers. The survey, from fund administrator SEI, was particularly interesting because it covered what investors think about a particular firm’s “brand” identity and how that factors into their decision to invest in the fund.
Not surprisingly, the results were mixed with many investors seemingly confused by the question. But from investors and consultants we've spoken to, having a solid and understandable brand in the market matters whether they admit it or not.
From the survey:
When we asked institutional investors to define “brand,” their answers diverged. Respondents were similarly torn on the importance of brand; one-third said it makes no difference in their selection of hedge funds, one-third disagree, and one-third are neutral.
A hedge fund needs to able to describe its unique investment process in an understandable and concise way both to potential investors and the public at large. Take it from Bruce Frumerman, CEO of investment management industry communications and sales marketing consultancy, Frumerman & Nemeth Inc. from the survey:
“You know your firm has graduated from commodity to brand when, after stating your fund’s name and strategy category, a prospect can add two or three sentences of elaboration about how you invest," he says. “If a hedge fund doesn’t actively market its investment- process story, it won’t outgrow being perceived as a replaceable commodity, known only by the pigeon-hole category of its strategy and its most recent returns.”
This can apply not just for hedge funds, but for any type of investment product or service. Money managers across the board, whether they manage institutional or retail capital, are becoming much more scrutinized. If they can't define their clear narrative, they won't be able to distinguish themselves. Hedge fund managers in particular can’t just sit back and rely on their track record – indeed the survey points out that investment performance is not even the most important factor when investors choose a fund. (This is already starting in the hedge fund world)
“There are those who get it right, and gather billions in assets, and those with no idea of how to get their message across. They just use the same mumbled jargon and rarely convey what is actually happening. Marketers who think they don’t need to put it down on paper and convince others their process makes sense will get nowhere,” declared a managing director at a large European institutional investor. Our panelists also emphasized how important it is to spend the time and resources needed to make complex processes clear and simple. “Explaining simply just what it is you do is the single greatest feat for hedge funds,” said Michael Green, CEO, International with American Century Investments.