Perfect Pitch – How Not to Be Tone-Deaf to Investors

February 4, 2014

If you’re managing a hedge fund, it goes without saying that you’re off-the-scale smart when it comes to the math underlying investment analysis. You probably have a model that can pick winners, winnow out the losers and provide a return on capital that’s the envy of all your peers. What you need to understand is this: That’s not enough. You need to be able to sell, and your value proposition has to be something other than I’m better at math than you.

“Many pitches are way too quantitative-heavy,” says Holly Singer, New Jersey-based founder and president of alternative investment communication firm HS Marketing. “If an investor doesn’t already know the firm or the strategy, they need to get a conceptual understanding of the basic building blocks. For the manager to  jump right into what’s basically a data dump and boast about his returns, it doesn’t cut it.”

What doesn’t work

Of course, that’s not the only problem facing hedge fund marketers as they go to meet the investors. Notice we didn’t say new hedge fund managers. These might sound like rookie mistakes, but some of your competitors have been making them for years. If you can avoid these gotchas, maybe you can reach the big leagues ahead of more seasoned professionals.

Some of these misfires — but by no means all — are related to the content itself. You need to present qualitative as well as quantitative information explaining, in layman’s terms, who you are, how you selected your team, what your strategy is and, of course, what precisely is the product you have for sale. And don’t forget about your process.

“If an investor doesn’t understand how you invest from generating ideas through risk management, quite honestly, they don’t understand how the returns and the risks are generated,” Singer says.

Another place where the train can run off the rails is the underlying structure of the pitch. You don’t need to draw the whole topographical map of your path to prosperity, but you do have to draw a straight line with a beginning (the elevator pitch), a middle (the content described above) and an end (a call to action — and don’t forget the contact information).

Lastly, the delivery can get messy.

“Managers only get one chance to make a first impression,” Singer says, so it’s important to present high-quality pitch books and tear sheets — and even your web site should have a professional gloss. Also, sit up straight and look the potential investor in the eye.

Help is on its way

If you’re like most people who are new to hedge fund marketing, it’s possible that none of this is a natural act. Or maybe you think you’re already top-notch at the soft stuff. But you need to make sure that you really are good, not that you’ve deluded yourself into believing you’re good.

Just like you might pay someone else to do your audit, compliance, administration or other non-core functions, you should consider hiring help with your messaging. Start with the written portions.

“Try to find an editor who can either review or improve the message because too often i think managers are so internalized they’re specialized in what they do they don’t really have the time or inclination to step outside the box and really see if their story makes sense,” Singer says. The result can be what she calls “boat anchors,” pitch books that go well beyond the 20-limit for most buy-siders.

Then there’s the actual, physical presence. Can you make a capital introduction pitch in less than six minutes? Are you going on too long? Are you talking about stuff that your target audience either doesn’t understand or doesn’t care about? Is your delivery crisp and well rehearsed? You might want to get some coaching.

“If you mumble,” Singer cautions,  ”you’re done.”

Ultimately, the worst thing that can go wrong with a pitch, though, is that it just doesn’t pitch. You need to identify what your competitive advantage is against your peers, and hammer that point home.

JOBS Act impact?

A good pitch is a good pitch, of course, and legislation has little to do with it. That being said, the recently instituted Jumpstart Our Business Startups Act relaxes SEC rules regarding general solicitation rules. This could be good news for hedge fund marketers, providing they meet the thresholds and criteria.

“It will promote the use of the internet in fundraising in a way we’ve never seen before, and it will more generally greatly expand the pool of potential investors who can be contacted during a fundraising exercise,” says Jonathan Axelrad, a partner with the Boston-based law firm Goodwin Procter, speaking in a webcast just prior to the JOBS Act’s implementation. “It’ll ease restrictions on speaking with the press. It will probably shift the balance of power among the players in the business, giving more power to issuers because they will have more choices about who to raise their capital from and commensurately less power to those people who can actually write the checks.”

Axelrad stipulates, though, that there are accreditation issues, bans in other countries, and new “bad actors” restrictions. So don’t start advertising on Candy Crush just yet.

 

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