Hedge fund branding: how not to suck 11 September 2015
“Why buy hedge funds? Because everything else sucks.” Ben Inker, co-head of asset allocation at GMO
Warren Buffet, according to the Financial Times, looks set to win a charity bet that he set ten years ago that a low-cost index tracker would trounce a portfolio of hedge funds
"The hedge fund managers have done very well over that period,” Mr Buffett said, noting that, on a notional $1bn portfolio, they would have made $20m in management fees “just for coming to the office. The investors in the hedge funds have paid a very big price."
A recent meeting with a hedge fund manager prompted me to write this post. He said to me:
“I already have a logo and a website, why would I want to invest in changing it? What value would it bring me? Is my money not better spent elsewhere?”
For many hedge fund owners the idea of creating a brand is often seen as a pointless exercise – what does a hedge fund need a brand for?
This may have been true in the past but the days when funds could rely solely on their databases to create business, or as Mr Buffett stated “just for coming into the office”, are over. Increasingly, hedge funds need to focus on creating a reason for clients to invest in them, articulating their point of difference and then backing this up with an effective approach to marketing and business development.
The increasing institutionalisation of the industry which has resulted in hedge funds catering largely to institutional investors, such as pension funds, leave them at the mercy of investors who answer to trustees and are notoriously intolerant of poor performance. This means that funds need to instil a high level of confidence in investors – through consistent ROI but also by presenting themselves in a manner that provides an air of quality and re-assurance.
In a highly competitive marketplace, branding is now considered an imperative for many funds. With investors being bombarded with information and approaches from fund managers, they need a method of differentiating between funds, enabling them to make an informed choice of which fund to back. Branding creates a point of differentiation that allows funds to stand out from their competitors – gives investors something to remember. With a record number of hedge funds operating globally, over 10,000 according to Reuters2, individual funds need a competitive edge.
The Reuters article shows how ‘both newcomers and established firms are racing to role out new portfolios’ to satisfy investor appetite but it also goes on to underscore the fact that it is a tough market, tough to raise money and tough for funds to be relevant in the $2.94 trillion industry. Whilst many funds are starting up, many are also shutting up business.
Combine these market conditions with demand for a more transparent marketplace, with investors putting funds under ever-more magnified scrutiny – enabled by the rise in the use of digital media channels, social media and a 24/7 news cycle – and it is apparent that hedge funds have no choice but to improve brand awareness and how they communicate with investors.
The business case for having a strong brand is even more relevant.
So what makes an outstanding hedge fund brand?
Firstly we must look at what a brand is (sorry if this sounds a bit like teaching you to suck eggs!).
In essence, most people consider a brand to be a name, an identity and a market position that helps build awareness and understanding of what your fund delivers. Hedge funds need to create a brand that appeals to existing clients as well as potential investors.
But, brand is not just about creating an identity – it is not just about having a powerful logo.
Your brand needs to permeate throughout your offer, your organisation and your people.
Thomas Welek, President of WalekPeppercomm, commented in a recent article: “Every hedge fund and hedge fund manager stands for something—whether it is effective risk management, an experienced investment team or an alpha-generating strategy. Ideally, a hedge fund would stand for all three. But the majority of funds only stand for one thing—their performance numbers.” 3
So where do you start – how can you create a brand that stands for something, creates value for your fund and stands-out in the eyes of the investor?
Of course, the starting point to having a strong brand is to make sure you have a demonstrably strong product offer. No matter how good you make your brand look - without your offer underpinning your business and continually delivering value and excellent return for investors, you are not going to succeed.
Assuming you have this covered, the next step is to invest in a distinguishable identity – create standout and a memorable experience for investors. A strong, unique, marque combined with visual language, tone of voice and personality that raises you about that of your competitors.
Next, and an absolute must in today’s digitally driven life, is to establish an online presence. Investors demand to see for themselves who they are dealing with, who are the fund managers, what do funds stand for, where do funds invest – and their first point-of-call is the internet. And, don’t forget your website needs to be aspirational – project the image and quality that your want your fund to be known for, clients need an element of desirability (we are human after all).
Plus, while you are at it. Think mobile. A startling fact is that web-users are more often than not accessing your site on their mobile devices – so make sure your site is responsive and device agnostic.
Think about other ‘touch-points’ that investors have with your brand – the experience your people give to clients; customer service; face-to-face, written and verbal communications. Look at how your brand is represented and develop a language and style that conveys the essence of your brand. Create a consistent brand experience for audiences.
And, don’t forget about the power of good PR and the use of social media. Enter into conversation with investors and demonstrate the depth of your expertise, knowledge and reputation.
Finally, don’t treat this as a one-off undertaking. Brands take time to establish and for investors to gain-trust in. Make sure that you continue to evaluate your brand and ensure that it continues to represent your fund and maintains the standout you desire.
As I stated at the beginning of this article, hedge funds can no longer rely solely on their databases or numbers, to keep ahead of their competitors they need to be proactive.
By building brand, and as a consequence valuable client relationships, hedge funds will achieve something more valuable than just performance numbers – a sustainable business.
Group Marketing Director
- Financial Times. ‘Warren Buffet versus the hedge funds’, Stephen Foley, May 4 2015. http://www.ft.com/cms/s/0/946ade3c-f235-11e4-892a-00144feab7de.html#slide0
- Reuters: ‘Record number of hedge funds now operating around the world: HFR’, June 19 2015. http://www.reuters.com/article/2015/06/19/us-hedgefunds-launches-idUSKBN0OZ1KF20150619
- Brand is the new performance for hedge funds, Thomas Welek, AIMA. http://www.aima.org/en/education/aimajournal/past-articles/index.cfm/jid/A5756D4D-F5DB-4294-B80DC1D96A1A424F