Hedge Fund Marketing: 10 Steps to Gain More Clients

May 19th, 2010
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Contributed by: Patrick O'Meara, Profor Advisors
Raising money for hedge funds has never been tougher and it seems like it will remain tough for quite some time, maybe forever. It is what most hedge fund managers are talking about and trying to figure out. It was not that long ago that money was pouring into anyone who established a hedge fund. With all the frauds and the market meltdown of 2008, those days are gone. The hedge fund business has slowly become institutionalized; investors not only have large sums of money on the line, but also their careers.

People buy people not track records. Today’s hedge fund manager should realize that obtaining clients and keeping them satisfied is just as important as the funds’ performance. Experience, performance, infrastructure, and risk management are a ticket to the dance, but you won’t be dancing without a proper marketing and client-servicing effort. It is critical that managers treat the potential clients and clients as if they actually matter – because they do! Successful firms view clients as real partners and in most cases these clients will stay with them through tough times.

Unfortunately, there is no Silver Bullet to guarantee a hedge fund manager more assets, but the following 10 Steps will increase your chances of raising capital.

10 Steps for Hedge Funds To Gain More Clients:

1. COMPANY MESSAGE: Formulate a Company Message that is clear, concise and memorable. The goal of your Company Message is to clearly inform the investment community who you are and what you do. Your message should come from top management and be well known by all employees. All marketers should be able to articulate your Company Message and be able to have a fairly detailed discussion about your firm and the portfolios. Your Company Message may change as you grow your business.

2. PITCH BOOK: Take a close look at your pitch book. This is your image piece, it is a necessary evil, you must have one. The ultimate goal of the pitch book is to get a face to face meeting with a potential investor. Does your pitch book clearly explain, Who you are (your firm history and pedigree), What you are doing (your strategy and the market opportunity) and How you are doing it (your investment process and management of risk). Each page in your pitch book should be there for a reason. If you cannot articulate why a particular page is in the book, take it out. In most cases, you don’t need a 40-page pitch book with 10 trade examples, since there are only a handful of investors that I can think of that actually enjoy reading pitch books. Crazy graphs, charts and diagrams, often referred to as “chart junk,” may make you feel good (for whatever reason), but if the reader has to struggle to understand what you are trying to say, then you lose. Make sure your graphics reveal rather than confuse. Don’t exaggerate your bio, being responsible for making sure your boss has hot coffee, should not translate in to you ran a trading desk. Keep your pitch book simple, accurate and to the point.

3. THE MEETING: Having a face to face meeting with an investor is a BIG DEAL. Treat it as such and be Prepared. It is the Main Event, Opening Night on Broadway. Are you Ready? What do you want the investor to think and feel as he/she hits the elevator button to leave your office just after meeting with you? Do words like Trustworthy, Honest, Experienced, Smart, Confident, etc. come to mind? Most investors when asked why they invested with a particular manager will say something to the effect of, the manager has a good track record, good infrastructure, manages risk well, etc. All of that is true, but there are others who may have a better track record, have more people, and manage risk better, yet the investor did not invest with them. So what is it? In the end, not to get too deep, it is the experience that the investor had in dealing with the manager during his/her due diligence process. It comes down to a gut feel that the investor has based on these experiences that drives him/her to invest. The manager has a lot of control over what the potential investor will experience during his/her due diligence process. Make your pitch a conversation rather than a presentation. Make sure you answer questions accurately and clearly. In most cases the investor does not have the same experience as the manager, so use terminology the investor understands. Using terms such as conditional asset swaps, rolling spread locks, condor trades, etc., without clearly explaining what they mean, may impress the investor, but will also confuse him/her. An impressed confused investor will not become a client. Obviously, if the investor understands all the applicable terminology, then have at it. The goal of a meeting is to get to the next meeting and ultimately call the investor one of your clients. If the investor is confused or not clear about how you make money, then you will hear – “we will put you on our radar” or “let us track you for a while,” which really means – thanks, but no thanks.

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