Should Hedge Fund Managers Care About Their Brand?

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.  

-Zach Kouwe

Advertising Advice for Hedge Funds from the Mad Men

As the hedge fund market prepares to advertise and attract more of the general public into its previously exclusive arena, advertising experts are urging the sector to reveal more of its inner workings than most managers will at first feel comfortable with.

Madison Avenue executives are suggesting that hedge funds consider highlighting the ideas behind some of today’s advertising lingo: the funds should aim for “transparency,” “access” and “performance,” in contrast to the reputation the funds have now of exclusivity, secrecy and exclusion.

"They have to find a way to be more transparent," said Rob Reilly, chief creative officer of Crispin, Porter & Bogusky, a unit of MDC Partners Inc. "They need to be honest and show how the money is made and how their process works."

It may take some getting used to on the part of hedge fund managers, but in today’s world businesses cannot disclose too much, says Reilly. As an example he explained the advantages of a recent ad campaign by Dominos Pizza, Inc. The pizza company played on information that consumers were not so happy with the taste of the product, so the ad campaign promised a new and tastier recipe.

"Being quiet used to be seen as a competitive advantage, but Madoff changed that, and being unknown and unheard of is no longer acceptable," said Allen Adamson, a managing director at Landor Associates, a branding firm owned by WPP PLC.

Bernard Madoff changed attitudes about disclosure after he was caught masterminding a multi-billion-dollar Ponzi scheme. Madoff pleaded guilty and received a 150 year sentence in federal prison.

Mr. Reilly added that hedge funds drop the word “hedge” from their name, because of the negative connotations that word inspires.

"In advertising it's all about using words that sound solid," he said. "Words are everything."

Hedge Funds Could Open Up After SEC Rule - Advertising?

By Zach Kouwe

Despite news reports earlier this month that the Securities and Exchange Commission was poised to delay important changes to marketing rules for hedge funds and other alternative investment funds, the S.E.C. published proposed rules yesterday that will have a significant impact on how hedge funds speak to the public and market themselves to prospective investors.

Both public relations professionals and reporters alike have quietly advocated for the loosening of these regulations, which have prevented hedge fund managers from talking publicly about their performance, investment strategies and even mentioning simple facts about their fund structure and fees. Now, if this new proposal becomes the law, more transparency will come to the hedge fund industry.

Dukas Public Relations, which prides itself on transparent and open relationships between its clients and the media, will be submitting a comment letter to the S.E.C. in support of the proposed rule. (Our letter will be available here and via the S.E.C.’s website soon.)

We believe this change will be welcomed by hedge fund reporters in particular, who often find it difficult to obtain simple information from hedge fund managers and the industry in general. Based on our conversations with clients and prospects, managers also support this change because most want to respond to reporters’ questions but fear running afoul of the rules. Even some managers who want to correct simple inaccuracies in the media can’t do so under the current regulations.

While some hedge funds and marketing execs have talked of full-fledged advertising campaigns, we believe most firms will opt to ramp up their public relations initiatives rather than buy ads in print publications or sponsor sp. While not opposed to advertising, we think engaging with the media and the public at large is the best way for the hedge fund industry to become more transparent and better understood. As a PR agency for hedge funds, we look forward to seeing this proposed rule become law. 

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Proposed Rules for Hedge Fund Marketing and Adversiting