Hedge Fund Sales and Marketing
Selling and marketing a hedge fund is much different than with a mutual fund, mainly because many hedge fund firms are not set up as Registered Investment Advisors. Therefore, per the SEC, a hedge fund cannot openly advertise. Prospects must be “accredited” or “qualified” investors.
Hedge funds are however, distributed in a growing number of ways. Hedge fund managers may use a “third party marketer” (an outside person/firm who connects investors with funds). Brokers, banks and insurance agents may distribute hedge funds; hedge fund consultants and hedge “fund of funds” managers are also sources of distribution. Some firms are getting into the act with “hedge-like” mutual funds.
The Internet has become a significant distributor of hedge fund information and the SEC carefully monitors funds’ internet activity.
Investors have different requirements, and therefore require different sales approaches. A high net worth individual may make a relatively fast decision to invest, based on a fund’s track record and a good presentation by the manager. Foundations and endowments may also be more responsive to hedge fund investment, since many of their board members are high net worth investors themselves.
Larger entities (e.g. corporate defined benefit plans, public funds) may involve a longer sales cycle, and will demand more transparency than other investors. They may also employ an investment consultant that acts as a middle man in the investment decision process.
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