Are You Ready To Advertise Your Hedge Fund?


It finally happened.  The powers that be in the hedge fund world have convinced Congress, the Senate, and in a few days, the President of the United States that by allowing hedge funds to advertise,  hedge funds will in turn create jobs.  Pure Genius.  We knew hedgies were smart, so to give elected officials hope that something, anything, will create jobs and not cost the American people a dime...SOLD!

Say hello to the JOBS act, which stands for, Jumpstart Our Business Startups Act. "This legislation is intended to help start-ups raise capital and go public, and is positioned as a bill with bipartisan support aimed at making it easier for small businesses to find investors early and to continue to grow in the public markets by lowering some of the bureaucratic barriers. It also promotes "crowd-funding,” a mechanism by which entrepreneurs can raise up to $1 million online from individual investors with minimal financial disclosure." (I took part of this definition from an article somewhere)  But most important of all, it lifts the almost 80 year old ban on hedge fund advertising

This is a monumental change in the way hedge funds will now be able to market themselves.  Some colorful ideas are in articles like this one: http://blogs.wsj.com/deals/2012/03/28/jobs-bill-opens-door-to-hedgie-advertising/.  


Now frankly, while it is fun to think about the possibility of firms like Paulson & Co. and D.E. Shaw naming stadium after themselves, (narcissists!) in my opinion, the biggest beneficiaries of this rule change will be the emerging hedge fund managers.  Emerging managers, those with under 50mm in assets and less than 5 year track records, consistently have the hardest time getting their message out to the investor community despite consistently outperforming the billion dollar plus managers.  The reasons why they have a hard time raising assets are fairly simple.  The largest reason being, institutional investors have been slow to adopt emerging manager investing.  Other reasons include investors not wanting to be too large of a percentage of total fund AUM, restrictions on any fund with less than 3 year track record, certain pedigree requirements and also select service provider requirements.  I believe this bias away from emerging manager investing is changing, however, with the proliferation of separately managed accounts because more institutions are willing to make an investment with an emerging manager (with a great track record of course) due the high degree of transparency and liquidity the SMA structure provides.  Now the problem is, how does an emerging manager get in front of institutions?  By advertising of course! Prior to the JOBS act, there were/are (at the time I am writing this) very few ways a small manager can get in front of investors.  Some of the only ways are through friends and family, existing contacts and colleagues, hedge fund databases (like my own, HedgeCo.Net), investor conferences and small RIA introductions.  I would say third party marketers/broker dealers, but there are very few, if any 3pm shops that take on new or sub 50mm funds. I also might say capital introduction groups at the Prime Brokers or Mini Prime Brokers, but they don't ever provide service to smaller funds (regardless of what they tell you!)  So advertising is frankly one of the only ways that talented managers can get their strategies in front of thousands, dare I say millions, of people within a reasonable time frame at a cost that more than likely won't break their budget.  This is truly a game changer for those fund managers who have great track records and no marketing connections.

As someone who owns a firm that raises capital for funds, runs a hedge fund, and also is a publisher, I think I have various takes on the way the rule will effect the industry.  For one, I think advertising may kill a lot of the low end third party marketers.  Funds have to pay a marketer a percentage of their fees for the life of client, but if they advertise, they only have to pay a one-time fee.  They can also immediately quantify what their cost per client is and continually optimize their campaigns to bring that cost down.  For smaller funds (say with a $10,000 marketing budget for example), I am not sure how else they would be able to get their message in front of the same amount of investors.   Tickets to a traditional hedge fund conference, a few client dinners, and plane tickets and hotels for a couple of people easily tops that figure.  Then, you can assume the fund probably only meets a hundred people if they are lucky; ten of which are investors, and two of those are interested in looking at emerging mangers.  Not a great use of resources.  Now instead imagine going to an agency and saying, “I have $10,000.  I would like to have my fund performance and strategy information pop up when anyone on a hedge fund database searches for an aggressive growth hedge fund under 25mm.”For $10,000 I can have that done one thousand times.  To me, that sounds like a much more targeted approach.  At the high end of the range however, I don't think advertising will ever replace marketers that are capable of bringing in hundreds of millions of dollars per fund that they market.  There is still something to be said for solid relationships and the trust built around them.

As a publisher of a hedge fund database and new site, I am incredibly excited about what the future holds.  Right now, in order to get on to our database at HedgeCo.Net, you must first fill out all your personal financial information online, then get a call from one of our representatives to verbally verify the information you posted.  Then, and only then, can you finally get on to the secure section of the website that has all of the hedge fund data.  This is a fairly onerous process to just be able to see some hedge fund performance, but it is currently what is required by the SEC.  Once the advertising ban is lifted, we can ease the registration burden and allow a whole new group of investors to view hedge fund data on HedgeCo.Net. As a result, I could not be happier about the opportunity.  Also, as a firm that obviously sells advertisements, we could not be in a better place to take advantage of the opportunity to provide hedge fund managers the targeted exposure they need through our various advertising products.  HedgeCo also owns the Hedge Fund Ad Network, the first advertising network focused exclusively on the hedge fund industry.  Our team of expert advertising professionals will help our hedge fund clients optimize their advertising budget and get their information in front of the maximum amount of potential investors for their funds.  We already have started pre-booking advertising for hedge fund clients and have space available on the top two hedge fund databases, hedge fund blogs and news sites, and thousands of other financial related websites and print publications.  If you are interested in learning more about our advertising services, please email Andrew Rapoport at arapp@hedgeco.net

As someone that runs a hedge fund, the ability for me to be able to tell the world about our strategy, what makes us unique, our returns, etc. excites the hell out of me.  I can't even tell you the name of my fund on this website right now, how much assets we have, who our staff is, nothing!  I literally cannot wait to tell the investor community by the millions what we do. 

So in summary, I believe one of the bigger beneficiaries of the JOBS act will be the emerging hedge fund manager.  At a time where institutions are getting warmer to being invested with emerging managers, these managers now will have a way to finally introduce their fund via advertising to a larger group of these investors, whereas before they might have never had the opportunity.

 Next topic on this subject - Will advertising lead to increased fraud and regulation within the hedge fund industry, or will it actually help to put standardized procedures in place? 

Feel free to comment on this article or the future topic below.

2 comments:

  1. I couldn't quite believe there was that 80 year ban on hedge fund advertising. That should not have happened in the first place if there are benefits to doing it in the first place. That is a welcome thing for mortgages for teachers uk since it can create jobs in the US.

    ReplyDelete
  2. Thanks for writing such a good article, I stumbled onto your blog and read a few post. I like your style of writing...
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    ReplyDelete

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Hedge Fund Capital Introduction can be a crucial component to a hedge fund's growth. Most bulge bracket prime brokers offer some form of capital introduction for their larger clients but finding a solid capital introduction program for smaller clients presents a challenge. This site is designed to discuss recent events and updates within the hedge fund marketing/capital introduction space. All contributors with beneficial knowledge are urged to participate.


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