Is Your Firm’s Story Good Enough?

As one of the thousands of hedge fund firms in the marketplace you face a significant marketing challenge. Will you turn your firm into a brand or allow it to be thought of as a commodity?

Known only by the investment style pigeon-hole in which the marketplace fits its products and by its recent performance, the typical money management firm is perceived to be no more than a commodity. Such firms live and die on their numbers alone. Few money management firms are known for what should be the core element of their firm’s brand identity: how they invest. Those who are have a marketing advantage over their competition.

Marketing is a major factor that impacts a hedge fund firm’s ability to grow and retain assets. Marketing plays a key role in determining a firm’s identity and in positioning it before the eyes of investors and advisors. When marketing is marginalized by a hedge fund, its ability to attract and retain assets suffers.

What Investors Are Telling Hedge Funds

Attend a hedge fund conference or two and listen to what investors are telling hedge fund managers that, in addition to a good performance track record, they need from them.

A fund of funds manager says he won’t invest if the hedge fund manager cannot clearly explain his strategy.

A family office CIO tells an audience of hedge fund managers that if the head of the family doesn’t understand how a fund invests well enough to repeat its story to friend while they’re out golfing, he won’t invest.

A seeder investor, who says he looks for a hedge fund manager to be able to demonstrate that he is capable of running the business and not just running the fund, demands there be a well thought out marketing plan and a cogent explanation of the investment strategy.

An angel investor says effectively talking the story in a presentation meeting is now more important than ever; a hedge fund firm better know its story inside out.

Sensing a pattern? Investors want more than just a page of statistical data to evaluate when considering whether to invest with a hedge fund manager. They want to know what his investment beliefs are. They want to understand, buy into and be able to repeat the story about how he invests.

Is your hedge fund, in its marketing, giving prospective investors all of the information they want for deciding whether or not they believe it is a defensible decision to invest with you?

Two Parts To Marketing

There are two parts to a firm’s marketing: sales marketing and communications marketing. Sales marketing is about the process of selling to prospects and their advisors. The job of a salesperson or team, whether in-house or third-party marketer, is identifying prospects, making contact, giving face-to-face presentations and managing follow up throughout the selling cycle for turning prospects into investors. But what is it that the target audiences are told? That’s the job of communications marketing. While good communications marketing can’t help improve your investment performance, it can help you have higher impact selling.

A firm needs a compelling and consistent storyline and language to use in its verbal and written contacts with clients, prospects and those who influence them; this is communications marketing. Communications marketing is what is used to persuade people to buy into the investment products a firm is selling and the process it uses to manage money. Everything from verbal sales presentations, marketing materials, quarterly letters to investors, research reports, market commentaries, speaking engagement remarks at industry events and stories in the press are communications marketing tools.

Does your firm have an effective storyline for communicating the veracity of its investment process and the intellectual acumen of management? If you’re not sure, consider these questions: How successful have you been in attracting investors who are not friends and family? Are you finding yourself losing prospective investors to competitors that have products and performance similar to yours?

Communications Marketing Challenges

Different firms face different challenges when it comes to effectively telling their stories. Here are but four examples of communications marketing challenges my firm has solved:

An 18-month-old, two-man hedge fund with good performance was preparing for its first ever presentation at their prime broker’s capital introduction event. The men were concerned that their long-short strategy was nothing special; they didn’t know how to communicate what they did, other than saying they look at the screens all day. They said they feared such a plain vanilla explanation would cause a skeptical prospect to think to himself, “My cat can sit in front of a screen all day, too; that doesn’t explain anything!”

A ten-year-old, midsize hedge fund looking to recruit its first in-house salesperson was turned down by its first choice of candidate. Why? In the time they spent telling him about their fund he found that the co-managers couldn’t agree with each other on how to explain how they ran the portfolio. The prospective salesman was worried that, in a round two meeting, one of the co-managers would contradict what he, the salesman, had initially told an investor about the fund’s investment process.

A sales manager for a multi-factor analytics-based fund had trouble promoting the veracity of her firm’s investment process. After making her presentation she often found herself stumped when asked to elaborate about elements of the firm’s quant-based process that were not being kept “black box”. This problem arose because she was unable to get a clear, detailed explanation from the portfolio manager about how they did their stock screening. As a result, she too frequently found herself having to respond to a prospect’s probing queries by saying “That’s a good question. Let me ask the portfolio manager and I’ll get back to you.” This did not engender much confidence in the eyes of skeptical prospects.

A one-man hedge fund, with no track record, was running what was at the time the most complex strategy on the Street: leveraged derivatives investing with a market neutral overlay. Neither institutional, nor high net worth investors were familiar with the strategy. Consultants had yet to understand it. Prospective investors lacked a predetermined asset allocation into which this product would fit. Also, the firm’s in-house salesman recognized that prospective investors, needing a comfort factor before they would invest, would first have to be educated about the range of derivatives securities to be employed and the foundation of the quant-based analytics system the fund would be using to guide its buy and sell decisions. The firm was struggling with the challenge of how to communicate all of this information without having a prospect feel overwhelmed by technical detail.

The Most Common Error

The most common communications marketing error we see made by hedge funds is telling an incomplete story.

While all hedge funds say something about Performance, Portfolio holdings and People at the firm, most underemphasize, don’t explain clearly or leave out Place and Process.

Place refers to the context in which the investment should be viewed. (In cases where a prospect doesn’t already have a planned allocation for a hedge fund’s strategy it’s up to the hedge fund manager to explain his product’s potential place within the prospect’s total portfolio allocation.)

Process addresses how the hedge fund manager invests. After Performance, Process is the most important part of a firm’s communications marketing story.

Strengthening Your Firm’s Storyline

For your hedge fund firm to strengthen its storyline, your management team needs to ask itself these questions:

1. What should be our firm’s key selling messages for educating and persuading people to understand and buy into how we invest?
2. How can we best structure our storyline so that it’s based on buyer-focused rather than seller-focused points?
3. In what priority should we present our key selling messages in order to communicate a linear storyline that people can recall and repeat to a colleague or advisor?
4. How should we position our fund in the investment marketplace in general as well as in contrast to our recognized competitors?
5. Which parts of our investment process are we willing to make transparent, which elements will we not reveal and how can we best describe a process that has some hidden steps?
6. What sales language should we use, with consistency, in our verbal and written sales presentations and marketing materials?

Acquiring A Brand Identity

Branding success for your firm is dependent upon your ability to educate and persuade people to be aware of, and buy into, how you invest. Achieving this requires developing a cogent and compelling way to best tell your investing story with consistency, applying it to your sales marketing efforts and obtaining third-party endorsement for and increased awareness of your firm’s investing process.

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© 2023 Frumerman & Nemeth Inc.

Bruce Frumerman is CEO of Frumerman & Nemeth Inc., a 35-year-old financial communications and sales marketing consultancy that helps financial services firms create brand identities for their organizations and develop and implement effective new marketing strategies and programs. Frumerman & Nemeth’s work has helped money management firm clients attract over $7 billion in new assets, yet they are not third-party marketers.  

Frumerman & Nemeth is internationally recognized for its work in crafting for clients the beyond-the-numbers story of how they invest — content that investment committees actually discuss, debate and vote on behind closed doors when considering firms on a short list for potential investment. Importantly, this is required due diligence content that cannot be communicated in pitchbook format. 

Frumerman & Nemeth’s work also includes providing strategic consulting on product and strategy-specific branding, crafting the required strategy-specific content detail and designing and producing the marketing tools needed to make it through the two-month to two-year institutional selling cycle. Clients also employ Frumerman & Nemeth to help promote the intellectual acumen of management — helping them get speaking opportunities, write and give speeches as panelists or stand-alone speakers at industry conferences, and through media relations marketing services. 

Mr. Frumerman can be reached at info@frumerman.com, or by visiting www.frumerman.com.