In the past, hedge funds were banned from soliciting investors via advertising or media relations. However, embedded in the Jobs Act was language eliminating these restrictions and allowing hedge funds, for the first time in decades, to promote their products. This creates opportunity for hedge funds seeking to grow their assets. It also causes some concern as less sophisticated investors may find their way into unsuitable investments.
We don’t expect a rush of new hedge fund promotion. But we do expect advisors, who have lately gravitated toward alternative investments and may be considering hedge funds for their high net worth clients, will pay attention.
What can hedge funds learn from traditional mutual funds about advertising and PR to reach advisors?
- Start with your website. Use it as a vehicle to define who you are and why advisors should trust you with their clients’ money. Make sure you include the kind of nuts and bolts information advisors want – track record, your investment objectives, investment minimums and fees, and how to open an account.
- Provide credible information about your investment professionals. Advisors will want to know your managers’ credentials and track record. What prior asset management experience and success have they had?
- Describe your process. Share your investment disciplines. Advisors want to know how your team plans to produce consistent results. A capabilities brochure or a Power Point presentation is a must.
- Think about what an advisor’s clients may be looking for. How can your hedge fund meet their needs for diversification, alternative sources of income, or for hedges against other asset classes?
- Transparency and disclosure is good — and expected. Be willing to share information with advisors and media to help gain trust and understanding. Most mutual funds disclose their whole portfolios semi-annually and top holdings either quarterly or monthly. Most advisors, like institutional investors, will want to complete a higher level of due diligence.
- If you plan to advertise performance numbers, keep them consistent with other investment vehicles in the marketplace. Provide investment returns over multiple time periods, similar to the standardized returns required of mutual funds, and compared to appropriate benchmarks.
- If you plan to talk to the media, provide expertise and context. Be a helpful resource for the media and be available on deadline if need be. If you are fortunate to be quoted or asked to be a guest on a financial news show, let your clients and potential clients know and post your news coverage to your website.