With more than 10,000 active hedge funds in the marketplace, all but the biggest funds have to do a lot more than achieve alpha to show up on potential clients’ radar.
Investors are inundated with requests for meetings and receive hundreds of phone calls and emails a week. So how does a hedge fund break through the clutter? Stronger branding and marketing, says Don Steinbrugge, Chairman of Agecroft Partners, in a guest article for Hedgeco.net
The largest hedge funds already have strong, established brands of course. That’s one reason why assets from institutional investors poured into them after the 2008 financial crisis, as investors sought the safety of the crowd. However their lackluster performance has recently driven some institutional investors to consider smaller, more nimble funds that are generating higher returns.
But once again, the majority of inflows, says Steinbrugge, are going to funds with stronger branding. So how does a hedge fund develop this stronger branding?
Some funds benefit from having a star manager whose reputation was polished at a previous firm or at a top investment bank’s proprietary trading desk. These star managers typically have high-profile launches and little trouble attracting seed capital or significant investment, thanks to media attention and a general buzz throughout the investor community.
But those funds not as fortunate to launch with great fanfare, or those that have been chugging along quietly generating alpha, need to take a more systematic approach. These funds need to understand all the evaluation factors that investors use to create their shortlists. And performance is only the beginning.
“Hedge fund performance tends to be a quantitative screen to eliminate a majority of managers, but once performance has reached a certain hurdle its weighting in the evaluation process is less important than most managers realize,” says Steinbrugge.
The next step to building a strong brand is delivering a consistent, concise and linear marketing message that identifies the differential advantages across each of the evaluation factors investors use to select hedge funds.
This message must be clearly understood by all employees consistently integrated throughout all the firm’s marketing materials, including website, oral presentations, written materials, due diligence questionnaires and quarterly reports.
Experienced internal salespeople, or a top-tier third party marketing firm, can have a huge impact on delivering this message and on your firm’s success in growing your asset base. These professionals will often have the reputation, experience, and even their own branding in the marketplace that will rub off on your firm and significantly increase the possibility of meeting with an investor.