Frequently, hedge fund managers will opine that the essence of marketing comes down to three things…pedigree, process, and performance. A fair number of these hedge fund managers are marketing their fund almost exclusively to high net worth investors, and this is particularly true with startup and emerging fund managers.
The problem with the “3 P” approach to marketing is that it is largely an institutional approach, and as such, is not, for the most part, effective in the high net worth marketplace.
High net worth individuals simply do not approach investment in the same way as do institutions. While a “3 P” approach to marketing makes sense to large institutional investors accustomed to a marketing approach that focuses on the conventional tranches characteristic for large institutional investors, most high net worth individuals are not thinking in terms of traditional buckets and mandates.
In sharp contrast, high net worth individuals are searching for innovative strategies with innate performance advantages—any link to traditional disciplines be damned! Because of this attitude, a “3 P” approach to marketing is not compelling. Here’s why…
Let’s be frank…it is rare that a manager’s pedigree is so singular and so compelling that it will stand out from the crowd and attract the attention of high net worth investors. One must also consider the fact that many, having graduated from prestigious schools, and armed with years of experience, have failed as hedge fund managers. Naturally, those lacking long-term hedge fund experience, those with little or no record of accomplishment, and those with no substantive reputation in the industry have only a pedigree to turn to.
Process is not a term that is interchangeable with investment strategy. Rather, it refers to the standard technicalities involved in day-to-day investment operations. It concerns methodologies for generating ideas, screens for targeting investment opportunities, due diligence, and, finally, channeling those results into viable, actionable investments. In short, it means the manager is doing what he must do, more to the point, what all mangers do, in managing the fund. Process tells the investor nothing about the manager’s strategy, why it is unique, and why it deserves the investor’s attention.
It defies logic to think that an investor who does not comprehend or value a manager’s investment strategy will have any modicum of confidence in that manager’s numbers. In other words, good performance results may be the result of chance and conditions as opposed to a reasoned, repeatable strategy. Conversely, if one presents a concise, lucid, and persuasive explanation of how the gains were achieved, then one has proved the theory with facts.
New and emerging managers marketing to high net worth individuals will be best served by making strategy your first talking point. Investment insights and strategy, how you invest and why, is the best means of differentiating you from the crowd and make your points on how the high net worth investor will benefit.
Only then is it appropriate to layer on the 3 Ps. They are powerful tools of persuasion, but most effective when used in proper sequence…so lead with strategy!