HF Third-Party Marketer Sees Rising Interest In Industry

Jun 7 2012 | 12:35pm ET

Interest in hedge fund third-party marketing is growing, says Don Steinbrugge of Agecroft  Partners, a Richmond, Virginia-based third party marketer.

“Three years ago we were contacted by about two hedge funds a week, Steinbrugge told FINalternatives by e-mail, “in 2012 we are averaging approximately eight to 10 a week.”

Steinbrugge says the third-party marketing industry has faced a difficult few years. It was “devastated,” he said in a recent press release, from 2008-2011, as its fee revenue and asset base declined along with the rest of the hedge fund industry. Hedge fund net flows fell off an estimated 95% from their peak and only slow recovered through 2010, and small and mid-sized funds—those most often served by TPMs—were hardest hit.

The industry also suffered from what Steinbrugge calls “a few bad apples”—like those involved in the New York State Common Fund’s “pay to play” scandal in which an official associated with the fund created a TPM to demand payment from alternative investment managers hired by the fund. The incident led to calls for a ban on TPMs, but the eventual result was the State’s less Draconian “pay to play” legislation which Steinbrugge says ultimately worked in favor of “top” third-party marketing firms by “leveling the playing field and making everyone play by the same rules.”

In 2012, says Steinbrugge, small and mid-sized hedge funds have realized that third-party marketers can help them build their “brands” which, in turn, allows them to compete for assets with the large ($5 billion plus) funds.

“A high quality product offering and strong historical returns are not enough for smaller mangers to attract capital,” said Steinbrugge. “They also need to effectively communicate what their differential advantages are in order for investors to have a positive perception of the fund. In addition, they need an effective sales and marketing strategy.”

Steinbrugge says having such a strategy will be especially important now that the JOBS Act has lifted the ban on hedge fund advertising.

 


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