Facing Headwinds, What Can Hedge Funds Do?
How hard is it going to be for small and midsize hedge funds to survive, much less thrive? According to two recent news items, very hard.
- AR noted that the vast majority of hedge fund flows are going to the biggest of the big players, with investors shying away from everyone else.
- Merrill Lynch projected that as many as 20% of hedge funds worldwide may liquidate over the next 6 months.
If a fund is preparing to launch, in startup mode, or somewhere south of $500M, this is gloomy stuff. What do small/midsize funds do in this environment?
One option, of course, is improving performance. But everybody is working tirelessly at that. And for those funds below their high-water marks, it can be a long road back to attracting investors (and collecting performance fees).
A second option is to invest heavily in distribution, specifically via third-party marketers or by increasing in-house staff. Under the right circumstances this is appealing. But most small funds either hesitate or are incapable of investing heavily here.
The last option is the one with the best risk/reward profile. It’s professional branding and communications.
Most small funds spend on a logo and other rudimentary branding. Fewer spend on designers to help with materials (pitch books, fact sheets). And fewer still use professional copywriters to refine their messages.
As a result, most hedge funds miss the best opportunity they have to stand out. The hook, the story, the “what makes you different and interesting” is critical. Small and midsize funds need to consider an investment in professional communications for three reasons:
- Developing communications is not a core competency. Investment experts are not necessarily experts at telling their own stories, nor do they always understand what prospective investors value most.
- Very few hedge funds do it. There’s contrarian value in using a tool most ignore.
- It’s affordable. One year’s worth of management fees on $1M in assets (or less) is a worthwhile price to pay to improve a fund’s chances of standing out.
There are many reasons why hedge funds fail to attract assets. A common one is that the fund’s story simply isn’t working. Given some of the dire projections for the industry, it’ll be interesting to see if more funds invest in their communications.