Hedge Funds Marketing: A Misunderstood Process

Some years ago, my boss at a well-known fund manager told the investment team that marketing was BS and that good performance and process would attract all the fund flow that you need. You can imagine how that stuck in my throat. I will always contend that you might produce the best widget in the world but if you don’t market it, no one will know what a great widget it is. Irrespective, fund marketing is a secondary consideration in most traditional and hedge fund environments. I will always suggest that marketing must be given the same significance as fund performance and process.

A couple of years ago, I delivered a paper at a conference entitled “Hedge Fund Marketing: Art or Science”? I would always say that it is a science or process rather than an Art. Most people think that fund marketing involves hiring somebody with a great Rolodex and they phone their buddies on the buy side to sell an allocation. Over the years that I have seen people hired for their “connections”, they virtually always fail. Marketing is a step-by-step process, which if followed, and is supported by reasonable performance (not stellar), attracts steady fund flow.

Let’s talk about the process. Day one in the establishment of a marketing unit is the development of your investor database. For this, you need a Client Relationship Management software package. In the early 90’s I got very animated about combining a word processor document with a spreadsheet and faxing thecombined doc out through a DOS software package called ACT. Market commentary and numbers out by a fax broadcast, it was sheer genius. Microsoft Windows wasn’t around then. Everybody operated under Microsoft DOS. By the time Windows 95 was out, there was an ACT for Windows, which was able to send fund updates via a new thing called email. Whoa, cutting edge. In these early years I became an ACT for Windows expert. Nowadays, I’m on Apple Mac and I use a CRM called Daylite. What do you use a CRM for? You input names and companies, and important details. You need interaction recording such as email and phone calls. You also need note taking plus a ranking as to potential investment. The CRM needs to be able to synchronize across a team with a large number of users and devices. These days you’ll need syncing to iPads and other devices. Plus Cloud capability, syncing and storage.

How do you source potential investors? I’ve built my databases over 20 years. My old hairdresser still gets my newsletters from 15 years ago. He says it’s pretty dull stuff but if he had a bit of money he’d be an investor. You can buy investor databases or trawl Google and even LinkedIn for contacts. There’s a local Institutional database called Rainmaker, which is very good with Superfunds, Asset Consultants, and Multi Manager contacts. Another very good service is the Family Office Connect, which specializes in Australian and New Zealand Family Offices. I’m very pro conference marketing. A lot of people will argue that the cost benefit isn’t there but I disagree. I think it’s a very effective way of collecting business cards, interacting face to face and learning from conference presenters. Realistically, sitting in Australia, you can get by with 200-300 key contacts from Superannuation Funds, Multi Manager Funds, Private Banks, Family Offices and Dealer Groups. I should mention Asset Consultants and product Research Houses such as Towers Watson and Zenith. In the case of the Research houses, you need a Product Disclosure Document (PDS), effectively retail distribution, where you have the product rated ahead of marketing to the Dealer Group networks.

The next step is communicating with all of these contacts. The best form is a monthly newsletter. More than likely, a performance update. This newsletter goes out to approximately 6000 recipients around the world. I get more subscribes than unsubscribes so I guess more people like it than dislike it. Other than my ramblings I include local market news via David Chin, economic reporting from George Bijak and Chris Gosselin’s AFM League tables. Plus Gadget Corner, which is more my hobby. Hopefully readers find something interesting there.

The next step is road-showing which involves a lot of airline miles. When we market a manager, we set up the roadshow and that gives the manager an opportunity to showcase their skill set. This is a key component. We don’t “sell” the skill set, the manager does this. There is no amount of sales skill, follow-ups, ask for the cheque, none of this works unless the portfolio manager hits a chord with the investor. And then the follow up is the monthly performance. Fund selling is a soft sell. Meet the manager, click with the investor, and send monthly performance updates and then, maybe an investment after the investor has watched the performance develop. In my experience, this process from first meeting to investment takes 12-18 months. You might do 20-30 roadshows and you may see one investment. I tend to do 1-3 deals a year.

In Australia, to do all this you need to have an Australian Financial Services License AFSL, although depending on the legal advice, you may be advised otherwise. It is probably better to have one as a client gets significant comfort from the fact that you are licensed. If you want to extend your business to retail distribution, this is a requirement. Offshore marketers theoretically need a license. There are reciprocal arrangements with various Regulators but most offshore marketers don’t seem to bother.

I must discuss Social Media. I am still trying to work out how it fits into Financial Services. I am looking at outsourcing contact scouring primarily through LinkedIn. I have a large contact base in LinkedIn but I don’t utilize it as efficiently as I should. Twitter is good if you are somewhat of a celebrity even if it’s just within Financial Services. Quick messages to Followers. Manager X is up 1% for the month of June, click here. Facebook is probably the same. Anyway, where do you get the time for all of this?

Here’s the Catch 22. All of this costs money. A marketing company has staff, rent, telephones, travel expenses and IT. Licensing and legal costs. So on, and so on. Managers seem to think that they can pick up these services for free. Increasingly, marketing entities charge for these services. It is normally a retainer plus fee share, and expenses. The costs are significantly less than inhouse marketing staff and there is no Superannuation Guarantee, PAYG Tax, Annual and Sick Leave.

So I hope that I have got my message across. Marketing is a process and not just contacts and connections. The process needs to be constantly monitored, updated, and it’s ongoing. It’s very intense but very rewarding when you get an investment. Remembering that the marketer is only the facilitator and communicator. The fund manager closes the investment. They must work hand in hand.