The Emergence Of Hedge Fund Branding

Dec 3 2014 | 8:36am ET

By Doug Litowitz
Senior VP, The Monogram Group

Hedge funds and private equity funds have long engaged in marketing, but the last eighteen months have seen the rise of a higher level of image and message management known as branding.

To take a deeper dive into this subject, it’s important to understand how branding differs from traditional marketing, and why it’s being so aggressively pursued by hedge funds and private equity shops.

Marketing is traditionally portrayed as the process of reaching potential investors through personal introductions, or so-called “cap intro.” Whether conducted through an in-house marketing team or third-party marketing firms, the basic idea is to meet investors one-on-one or at invitation-only conferences. In other words, marketing is meant for the private eyes of high net worth investors and institutions, and no one else.

By contrast, branding inherently reaches the public eye.  It involves the forging of a public message through an interactive web site, brochures, social media, and promotional video content.  It puts a public face on a hedge fund – a face that can be seen immediately by anyone, anywhere, and often in multiple languages.

There used to be, of course, a very good reason private funds eschewed branding.  For decades, the SEC held the sale of hedge fund interests was exempt from rigorous registration requirements, only if the fund conducted a private sale to accredited investors not involving a ‘general solicitation’ of potential investors.  Hedge funds rightly feared a detailed web site or any broadly disseminated material might be deemed a general solicitation of investors that would reach non-accredited investors and draw the ire of the SEC.  

This legal explanation was reinforced by a belief system that made branding taboo:  hedge fund managers believed (and some continue to believe) that secrecy provided cachet, as if their silence was somehow portentous, or at least gave the impression they have something so valuable, it needed to be hidden.

All of this has changed in the last 18 months – dramatically. 

First, under the new JOBS Act signed into law by President Obama, hedge funds are now permitted to advertise without fear of conducting a general solicitation – as long as they accept money solely from accredited investors, and as long as the firm checks a box telling the SEC they engage in advertising.  So advertising (that is, branding) is now legal according to the SEC, and more recently, the CFTC.

Secondly, the last two years have seen the exponential rise of Internet access via mobile devices (as of January 2014, 55% of all US access). As a result, more people are using mobile devices to access information about hedge funds.  This creates a problem for most funds, because more than 90% of hedge funds have web sites not navigable on a smartphone.  In fact, most firms have simply a one- or two-page placeholder website providing little to no information. 

In an era when every person and company has a Facebook and Twitter account, secrecy no longer equals cachet.  If the truth were told, most hedge fund sites look like a college intern designed them.  The one-page web site that in 2005 said, “We are an invitation-only, elite firm and we have a secret sauce,” now conveys a different message: “We lack a message and a position, and we’re unable to tell you about ourselves and what we do.”

Some hedge funds and PE funds have moved quickly to take advantage of the new legislation.  They’re building impressive websites and even branding themselves with new messages and a visual presence.  Others have not budged, insisting they’re “flying under the radar,” though it’s not clear such a thing is possible.

Some firms are resistant to the cost of branding, considering the cost/benefit analysis is somewhat clouded by the difficulty of quantifying the benefits. This can be a stumbling block for those accustomed to using numbers all day to measure profit and loss.  But if branding leads to new investors, or better terms from brokers, or better job applicants, then it could pay for itself in a matter of weeks or months. 

Another problem, frankly, is some hedge fund executives are not the most social people, and they’re self-conscious about presenting themselves publicly on the Internet.  Here again, it’s useful to remember that nature abhors a vacuum, meaning if a hedge fund manager does not affirmatively put forth an image, then others will create one on their own.

As a former hedge fund lawyer now involved in fund branding, I’ve seen firsthand a number of positive attributes from branding.  First, and most obviously, a highly polished and upbeat website will be attractive to investors, vendors, job applicants, and may even influence the press. After all, there’s a certain first-mover advantage to controlling your message preemptively, rather than waiting for reporters and bloggers to impute whom they believe you to be. 

But more importantly, branding requires self-assessment. Managers are forced to ask: What is our focus?  What makes us unique?  What is our culture?  What do we expect of others? What face will we show to vendors, investors, counterparties, and potential employees?  There are no real limits to what can be said, though of course a hedge fund is always subject to the antifraud rules of multiple regulators. So a fund must present its information clearly, and not omit any material details.  A smart fund will have its compliance department review all branding material, just as it reviews pitch books and press releases.

The future of branding is difficult to predict.  It seems likely that some of the more ambitious funds will increasingly become involved in branding until it becomes standard practice in the industry, and then the remaining funds will play catch-up and follow the leader.   It will be a development worth watching in the coming year.

Doug Litowitz is a Senior Vice President of The Monogram Group, a brand catalyst agency based in Chicago. Involved in fund branding since 1996, Monogram also established the first practice dedicated to cross-border branding for Chinese companies.  Doug leads their practice specializing in the branding of private funds, with an eye toward financial institutions in the US and China.  For more information about hedge fund branding see: www.monogramfbr.com


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