Before you dive into the unexplored world of how to market a Hedge Fund, you first need to have a somewhat basic understanding of what Hedge Funds do and whom they serve.
Hedge Funds are more than likely the result of private investment partnerships. These partnerships or investment pools are open up to a small number of investors and to be part of the hedge fund, one would be required to contribute a minimum investment which is normally quite large.
Hedge Funds are regarded as “Aggressively managed portfolio investments that use advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns” (Investopedia)
From the above introduction to hedge funds, people that are not informed on Hedge Funds may find it difficult to come up with methods on how to market hedge funds or more specifically to come up with methods on how hedge funds could market themselves.
Upon researching this topic, I came across the American Jobs Act which provides substantial insight to how Hedge Fund managers may approach the marketing or advertising of their Hedge Fund to investors. Two key contributors to the Jobs Act article stated that managers could make use of three ways to market themselves. They can make media appearances, conference appearances and even increase their presence on social networking sites such as Twitter and LinkedIn.
South Africa’s Hedge Fund industry is relatively small when compared to the overall Hedge Fund market on a global scale. It only makes up R31 Billion when compared to the US$ 2 Trillion global market. On the 5th of September 2012, the National Treasury and Financial Services Board (FSB) released a proposed framework regarding the regulation of Hedge Funds in South Africa. This framework proposed that there would be two types of Hedge Funds- Restricted Hedge Funds and Retail Hedge Funds. Both the FSB and the National Treasury stated that the Restricted Hedge Funds will not be allowed to market themselves, nor will they be allowed to solicit funds from the public. According to InvestSA, these restricted Hedge funds will be limited to arrangements with private investors only.
Retail Hedge Funds, on the other hand, will be able to market themselves to the general public, who can invest in them. However, along with being allowed to market to the public, they will be fastened by more stringent rules (by CISCA) to protect prospective investors. There will be regulations about the specific types of assets that Retail Hedge Funds could invest in, as well as limits regarding their leverage.
As we all know, when laws are made there will always be ways to get around them. These loopholes are welcomed with open arms, especially in the financial industry. Seeing as though Hedge funds may not directly market themselves (or they will be limited in this regard) they would try alternative measures to get themselves out there. For example, a form of marketing that will gather a number of potential investors (legitimately that is) is if you host a charity event of some sort, and offer to sponsor the event. Technically all you’re doing is helping out.
To gain further insight on this relatively untouched topic, I questioned an anonymous member of the South African hedge fund industry:
- What is your personal view on marketing Hedge Funds?
My view on Hedge Fund marketing is that it is more about building a relationship than anything else. The bottom line would be to build a strong enough relationship built on trust in order to encourage investors to invest in the respective Hedge Fund.
- Can you give alternative ways in which Hedge Funds could market indirectly?
I believe communicating strategies and benefits to their (Hedge Funds) investors is a great start. This can be done through Transparency and by focusing on a particular niche in your Hedge Fund target market.
- What would be the best way, according to you, that Hedge Funds could market themselves’ in today’s economic climate?
Today people are so sceptical of a “suit and tie” relationship, or even when someone mentions Hedge Funds or investing. So, the best way to market a Hedge Fund (also the legal way after the proposed Hedge Fund Act) would be genuine face to face marketing by means of luncheons, dinners, charity events, etc.
When it comes to Hedge Funds, the key ingredient that is lacking in the marketing department is the fact that marketers are not educating prospective investors about risk and risk management. Another Achilles heel in the body of marketing of a Hedge Fund is that transparency is somewhat lacking. The marketers need to explain the business model of the Hedge fund to prospective investors in a simple (yet professional) and transparent way – don’t leave anything out. For example, the marketers would need to explain how they would manage the risk associated with the investment, what assets they buy and sell and then also how their individual strengths fit the business model.
Marketing Hedge funds is a relatively “untouched” topic because there are so many “grey areas” when it comes to doing so.