Counting the number of hedge funds in the world is like trying to follow the Major League pitching career of Octavio Dotel. It’s incredibly complicated and subject to sudden change. The former Met-Astro-A-Yank-Royal-Brave-Northsider-Buc-Dodger-Rockie-Jay-Card-Tiger free agent might be running out of teams, though, but the tally of hedge funds just keeps growing. At Hedge Fund Research’s last count, it exceeded 10,000 and closing in on a record. You, as a hedge fund manager, need to find a way to distinguish yourself. And if you don’t throw an average of 10 strikeouts per nine innings pitched, you better think of something else.
This is especially true if you’re a long-short equity player. That is, after all, the most crowded field.
“Process is an important area to differentiate,” says Holly Singer, president and founder of New Jersey-based alternative investment communications firm HS Marketing. “If a firm is particularly quantitative, it behooves them to be very transparent about a complex strategy. They need to distill what they do and avoid that black box.”
On top of that, Singer advises, hedge fund marketers might want to crow about their firms’ trading technology.
“Have they bought it or built it?” she asks. ”If they built it, is it proprietary? Is it patented?”
Holly Singer estimates two-thirds of all hedge funds are long-short equity funds. Here are her tips for differentiating within that strategy:
- Be introspective. Discover your brand equity that can be showcased to distinguish your firm, team, strategy, process and/or product.
- Research the competition. What sets you apart? Be proactive; incorporate that into your message.
- Become a great presenter. You need that edge to win allocations in a competitive environment where most investors want to invest in larger established firms.
Of course, technology goes beyond trading platforms. Social media savvy constantly imposes its increasing grip on investors’ limited attention spans. She suggests having at least splash page of a web site, maybe an e-newsletter, and definitely a LinkedIn presence and a Twitter account. Tweets, she cautions, should be about ideas, not products. Although every month, it seems, there’s a new hipster channel in the social media spectrum, Singer advises hedge fund managers to stick to those two, established, business information outlets.
Not that she’s against multimedia. Far from it. Embedded in those tweets or LinkedIn updates ought to be video presentations on topics of interest to your investors. You can park those on your web site or link them to your channel on YouTube, Vimeo or something similar. Similarly, you should have enough technological sophistication to meet with your money real-time in the cloud via WebEx, Skype or other videoconferencing service. These, Singer says, are particularly helpful for those far-flung hedge fund managers who don’t live and work near the world’s financial centers.
All of this mucking about on the web, though, has an opportunity cost. Every second you spend finding the money is a second you sacrifice from growing the money. That’s true whether you’re walking around with a pitch book or having a Skype chat. Through trial and error, you’ll find the mix that works for you.
All this discussion of process and technology, though, turns a blind eye to the surest way of differentiating a hedge fund manager: strategy. If you have a particular field of expertise or interest, this is a chance to shine.
“We have identified a particular segment of healthcare that is characterized by fairly dramatically inefficient capital markets,” says Misha Petkevich, founding partner of V2M Tactical and V2M Life Sciences Fund, as well as “by tremendous innovation and, if I may go so far as to say, disruption.”
He is referring to medical breakthrough products, in which V2M makes contrarian investments — basically distressed situations and event-driven plays.
“We take positions in companies when they have been abandoned or orphaned by Wall Street,” Petkevich says. And, if you’re thinking that biotech is so hot that it has no orphans and there are no contrarian positions to take, Petkevich would disagree. “It’s a very difficult road to go from innovation to commercialization. Invariably, companies hit bumps in the road.”
One example he cited was Biogen Idec (Nasdaq: BIIB). As of this writing, it’s trading in the neighborhood of $300/share but, in 1995, that same share traded for less than 40 cents, when the company was one payroll away from insolvency.
V2M also distinguishes itself by its management team. Petkevich credits his partner Dennis McCoy, with much of the firm’s success, both in his own right and in collaboration. Petkevich is a Ph.D. and McCoy is an M.D. McCoy started out in operations and Petkevich in securities analysis.
“[McCoy] has got a different set of experiences that created a pattern recognition capability in him and i have a different set that created a pattern recognition [capability] in me,” Petkevich says. “Combined, those two are much stronger than by themselves.”
Just as strategy is only one way to differentiate a hedge fund manager, distressed situations in medical devices is only one very narrow sliver of possible strategies. Whether you elect to make your name via strategy, process, technology or some other distinguishing characteristic, you need to understand what your strengths and weaknesses are and market yourself accordingly.
It’s the difference between having two World Series rings on a hand that throws a mean four-seamer and a nasty slider, and being just another injury-prone 40-year-old sitting in the bullpen.