hedge funds asset growth

Best practice: Public Relations – How PR can play a key role in asset-raising

The number one strategic priority for hedge fund firms, according to EY’s latest Global Hedge Fund and Investor Survey, is asset growth. It’s not difficult to see why. We are in the worst period for hedge fund capital-raising since the global financial crisis. The pool of capital investors allocate to the industry is diminishing, with redemptions totalling over $100bn last year, according to eVestment. Many well-known names have suffered big losses in assets and hedge fund closures outpaced launches in 2016 for the first time since the crisis.

All this makes raising and retaining capital of critical importance to hedge funds. It places the IR function at the heart of firms, but also puts heavy pressure on professionals in those roles to succeed. Managers will want to know that everything that can be done is being done to raise and retain money.

Positive PR can undoubtedly assist capital-raising by increasing investor awareness and interest, demonstrating investment expertise and building credibility in the marketplace.

However, hedge fund managers frequently view it with suspicion. They associate it with attention-seeking behaviour from ‘rock star’ managers or imagine the downside risks involved. Their eyes glaze over when marketing terms like ‘branding’ are mentioned. Many will believe in the mystique of staying ‘under the radar’.

However, most managers understand the importance of reputation, whether their own or that of the firm, in raising money. They see that it can be helpful to think strategically about managing that reputation and that it is desirable to avoid or deal with negative press interest.

Managers instinctively understand that in order to attract interest from investors, their firm must clearly define what it does that is different to, and better than, their peers. Those key differentiators are the essence of the firm’s brand and one of the main ways that brands can be built is through the press.

So the way to see hedge fund PR is in terms of careful reputation management and strategic brand-building to support capital-raising and retention. If done well, it can have a significant positive impact on the success of the firm. Most firms currently attracting
notable amounts of investor capital have sophisticated brand infrastructure in place.

What does this mean in practice?

Hedge funds should start by looking at their corporate strategy or what their narrative as a firm is – the brand you want to build. In hedge fund terms, this should not only cover a firm’s investment edge, but also other factors of interest like the culture and values of its founders and personnel, and the robustness of a firm’s operational infrastructure like in risk management and governance.

This is because investors face career risk and know that a bad investment decision could have critical outcomes. They need to be reassured that the firms they allocate to are serious long-term partners. They don’t want to be known for authorising an allocation to a firm that blew up.

Institutional investors typically have investment committees and boards of trustees, and while individual CIOs may understand the value of allocating to hedge funds, members of these committees or boards are often sceptical. Often, they won’t be that familiar with the industry, and may have read negative stories about performance and fees in the press. One of the first things they will do when an allocation to an individual firm is discussed is research that hedge fund online.

That means it is extremely important to have an attractive, professionallooking website with details about firm history, people and strategy. Landing-page websites or no website at all are red flags for many investors. Some still suspect that hedge funds are shadowy and secretive, and, if these prejudices are confirmed, it will be more difficult to win allocations.

Strong website content, such as thought leadership or video material, is also very helpful, as is any indication that a firm takes its community or environmental responsibilities seriously.

This could include charitable activity but might also cover socially responsible investment (SRI) policies.

It is also desirable for positive media coverage to come up on internet searches as it can act as a form of third-party validation. If the pieces go into some depth about the investment strategy of a firm and the views of its principals, all the better.

Ultimately, good coverage can help to generate reverse enquiries from investors.

On the question of staying ‘under the radar’, it undoubtedly works for some firms, particularly if they are already turning away investors. Often, however, when managers say they don’t want press coverage, what they really mean is they don’t want their
personal life to be splashed all over the tabloids. Few managers are likely to have a problem with a thoughtful feature in a respected investor publication. Good reputation management can make sure unhelpful stories do not run while positive ones do.

When considering whether to speak to the press, firms should think about their goals in terms of asset-raising and the demographic of their target investors, which is often a function of size. Emerging managers are usually reliant on high-net-worth and family office money initially, and, as they get bigger, FoHF capital may come in. They will often need to get to around $250m to $300m to attract tickets from larger institutional investors such as pension funds, endowments or insurers.

Sovereign wealth funds will typically require even more assets under management to consider allocating. So a firm seeking to attract high-net-worth and family office money in Europe should take a different approach to a firm targeting institutional allocations from North America.

One way to look at the press is to break them down into groups and to consider which investors read which titles. The hedge fund trade press are important for communicating to investors who already understand hedge funds, since they are often read by their CIOs. Separate investors might focus on specific allocator types, such as family offices or wealth managers, while blue-chip global news outlets, both print and broadcast, are very powerful for reaching all investor audiences. It is also worth thinking about key local publications in individual geographies, which may be the best way of reaching investors in those countries.

One concern many managers have about the media is around compliance, fuelled by some hedge fund lawyers advising their clients that talking to the press could be perceived by regulators as marketing. Talking to the press per se is not the issue, but making references to individual fund returns could create regulatory problems in certain jurisdictions. As a general rule, as long as managers avoid referencing their returns or individual funds, they will not create compliance issues from talking to the media. The firm’s people, culture, infrastructure and investment strategy, or market and macro-economic views, are all acceptable talking points.

A hedge fund spokesperson should always receive some media training and be prepared before an interview with the key messages to be conveyed, while some hedge funds also go as far as having a policy in place to ensure expectations are clear and any process around media engagement is consistent.

Coverage of negative events or crisis situations in the press can occur, but many of these situations can be avoided with careful management. If such a situation does develop, it is critical to involve senior management and legal personnel – there may be times when it is better not to respond at all but in some cases it can be necessary to make a public statement. Indeed, if a mistake has been made, the best policy is to be transparent and swift in admitting it.

Many firms may have the ability to do PR in-house, although careful consideration needs to be given to whether they actually want a full-time employee to focus on this area or if it may be more effective to outsource that function on a project or retainer basis. Regardless of which option a firm opts for, it is crucial to ensure that the person tasked with dealing with the press has the experience and expertise to do so.

Written by Christen Thomson, Senior Director and Global Head of Hedge Funds

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