Reuters recently published excerpts from the keynote address at IMI’s 4th Annual Alternative Investment Consultants Summit, held Jan. 27th in Greenwich, Ct. The keynote speaker was Bruce Frumerman, CEO of Frumerman & Nemeth Inc., a hedge fund marketing communications consultancy.
Frumerman highlighted the positive turnaround in the hedge fund industry since 2009. Nearly a thousand new firms have launched in the past 12 months. Fund liquidations are down. And the funds that are launching are more attuned to investors’ needs for liquidity, lower costs, and transparency. Nearly one quarter of new funds comply with UCITS III, the new European Union Directives for liquidity, leverage and local market regulation. It all helps investors, particularly larger, institutional investors, feel more comfortable in committing capital to alternative assets.
However, Frumerman says with so many more funds now vying for investor attention, and creating so much more “noise” in the marketplace, it’s more important than ever to differentiate your firm. It’s not enough to out-perform one’s peers, he says. Money managers have to out-market their competition as well.
His opinion is backed by several studies. When institutional investors were asked to name their most daunting challenge in investing in hedge funds, their response was “transparency”, according to a January, 2010 survey conducted by SEI, a global provider of asset management and investment processing services. Over 70% of investors surveyed wanted more details about a hedge fund’s people, investment philosophy, and their process for generating alpha.
SEI updated its survey in January 2011, and found that “clarity of investment philosophy” has risen to the top of the list of factors that institutional investors seek when evaluating a hedge fund. “Risk management infrastructure”, which was not even among the top 10 selection criteria last year, leaped into second place. Understanding the risks associated with various strategies is a key goal when investors perform their due diligence on hedge funds.
It all points to the need for hedge funds to “clearly articulate how their strategies add value and are expected to perform under various scenarios,” says Frumerman. How good is your firm’s storyline about the superiority of your investment process and the expertise of fund managers? This is the core of successfully catering to today’s information-hungry investors and those who advise them.