At first blush, the blatant manner in which most hedge fund managers have thumbed their collective noses at the prospect of marketing their funds under the umbrella of new laws and regulations allowing general solicitation may seem, well … a trifle backward. However, when these hedge fund managers drill deeper, most conclude that marketing under the new rules offers little in the way of return on investment.
No New Demographics
Not only does lifting the ban on general solicitation fail to add a single new prospect to the mix, it threatens to redefine, in a stricter way, the qualifications investors must meet. In short, what was briefly perceived as a marketing tool with a potential to expand the client base, is now increasingly viewed as yet another minefield of regulation.
Fund managers are also circumspect with regard to public perception. After all, does a respected, trusted and successful hedge fund need to advertise? More to the point, would advertising detract from, rather than enhance a hedge fund’s image? Online universities and community colleges advertise—Harvard and Yale do not. These are the questions that most hedge fund managers are asking. To date, the answers overwhelmingly seem to favor restraint.
Advertising: Is it Worth the Aggravation?
Hedge funds have been attracting investors for decades without benefit of a public marketing campaign. In the decades since the Securities Act of 1933 imposed the ban on general solicitation, the hedge fund industry has grown to $2.82 trillion in assets under management … a sum projected to double by 2018, sans the benefit of traditional advertising. In fact, hedge funds’ assets under management have grown 7 percent through the first three quarters of 2014.
Absent a compelling argument, hedge fund managers will find it difficult to make a case for assuming the financial and regulatory burden that advertising would necessarily bring to pass. Consider the one hundred and eighty-five page document published by the SEC in conjunction with the new rule. This publication details provisions that must be adhered to by any hedge fund or other affected entity. Compounding this aggravation is the current debate raging over revisions in the definition of an accredited investor. Until this definition is fully vetted and blessed by the SEC, only the boldest and most foolhardy hedge fund manager would venture into these churning waters.
Risk versus Reward
At this point in the evolution of hedge fund marketing, the smart move seems to be one of sitting on the sidelines—waiting for the dust to settle. Existing marketing strategies, evolved over the past 8 decades, are serving the industry well, as evidenced by the nine consecutive quarters of growth in assets under management that hedge funds have enjoyed.
Hedge funds have already succeeded in carving out a unique niche in the investment community. Risking the loss of its current standing in the hearts and minds of individual investors and investing entities must necessarily be driven by something far more compelling than lifting a ban on advertising to those the industry already counts among its clients.