The hedge fund industry has undergone a quite impressive transition in recent years. Once the preserve of wealthy individuals, institutional capital now accounts for roughly three in every four dollars managed by the industry – a figure exceeding $2 trillion[i].
This apparent shift in investor demographic has had far-reaching implications. Demands for transparency, whether during the initial due diligence process or as an ongoing feature of being an investor in the fund, have meant that firms have had to invest significantly across all facets of their business in order to attract desirable mandates from institutional clients.
Increasingly, hedge fund executives are recognising the importance of brand. Faced with volatile markets and intense competition, marketing strategies that successfully define and individualise managers have become an essential part of a firm’s growth potential.
Sophisticated investors realised a while ago that performance alone is not a good enough reason to hire a manager. The industry must cater to these adjusted tastes by changing how it positions and markets itself. Instead of touting investment returns, it must emphasise branding and thought leadership. By establishing an identity in a crowded marketplace, hedge funds will be able to build something far more lasting than last quarter’s performance numbers – a sustainable business model.
This conversation must begin online. According to a recent study[ii], 96 of the 100 largest hedge funds in the world have a website, including 95% of the largest U.S-based funds. However, 54% of funds in that sample have either very basic sites containing rudimentary detail about the fund, or a simple splash page. It may sound naïve, but today’s investor wants to see under the bonnet, who the manager is, and where the fund ultimately sits in the wider asset management community. Corporate narrative is paramount.
If brand is formed at the nexus between what an organisation says about itself and what is said by external stakeholders, at this stage we should consider media profile. Famously secretive, hedge funds have a tendency to dip in and out of the classic media relationship – often only appearing reactively in crisis. The stakes are much higher today. Unfounded rumours can amount to redemptions and intractable reputational damage. The influx of institutional money has created an air of accountability amongst managers and trustees alike. Funds must therefore treat journalists like potential clients. The gradual cultivation of such relationships is, in financial terms, a form of risk management. There must also be a recognition that the media agenda is short-term, whereas investment management plays out over a much longer time horizon. The above should be factored into any integrated communications plan.
The JOBS Act represented a seismic shift for an industry used to operating behind the curtain. As hedge funds move into unchartered marketing territory, opportunities abound.
[i] Data from the Alternative Investment Management Association.
[ii] Study carried out by WalekPeppercomm.
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November 20, 2023
November 15, 2023