Since the advent of the financial crisis, hedge funds have taken significant steps to institutionalise their businesses and bring in more robust infrastructure and risk management. In an increasingly institutionalised world, the media does have a part to play and many hedge funds are now also re-examining best practice in terms of how they position themselves and the channels they use to communicate with their target audiences.
Reaching the audience
If you look at how hedge funds communicate with their target audiences, it is generally on a one-to-few basis. A hedge fund’s sales and marketing activity is mostly centred around face to face meetings with clients or potential clients, often supported by participation in conferences or industry events.
While direct contact will always remain the most important channel, this approach on its own unfortunately suffers from an inherent weakness: investment talent’s time is not readily scalable. It’s always a balancing act – the more time managers devote to marketing, the less time they are able to spend running money, meaning that there is a point reached where time spent away from investment activity can damage performance. As a result, by focusing solely on one-to-few communication, the touchpoints managers have with their target audiences become limited. PR, however, can provide an effective solution. By engaging with the right media via quality, targeted PR, hedge funds have the opportunity to extend their communications efforts to one-to-many, complement their existing sales and marketing initiatives and increase the frequency of touchpoints with their target audience.
Fund launches are a good example. Taking a new manager, with a new fund, and creating buzz and excitement around the fund via positive media coverage pays dividends in building reputation and winning assets. It can also extend your reach into markets where the manager is not physically located. The same is true for established funds – new developments, new hires, assets raised, performance delivered and investment views are all part of the narrative of building a strong reputation as a leading investor. But only if they are communicated effectively. The media, because it’s in the business of creating news, is a powerful medium for positioning established hedge funds as both current and relevant. However, to do this successfully you need the right approach.
Getting it right
Recently I met a large hedge fund which was active in the media and, having reviewed their coverage over the past year, I asked them about how this PR programme came about. The answer was not uncommon – they were simply responding to requests for interviews or taking opportunities they saw as easy to get. When you look across the industry, this example is one of three broad camps that hedge funds generally fall in in terms of their media relations:
• Avoiders – those who close down the shutters, avoid the media at all costs and attempt, mostly unsuccessfully, to keep stories out of the paper;
• Opportunists – those who talk to the media, often reactively and without necessarily a strategy or programme behind what they are doing, or a sense of exactly what they are trying to achieve; and
• Engagers – those who engage with the media with a sense of plan and purpose, and recognise that PR is a significant channel to generate more quality interaction with existing and potential investors.
For many hedge funds, avoidance can appear (at least on the surface) the most favourable strategy. However, the weakness of those who just avoid, or indeed are opportunist with the media, is they become too reactive and the media ends up determining the agenda, the content and the timing of communication. The media is therefore driving the messages your target audiences are receiving, rather than the organisation itself.
Those who proactively engage with the media in the correct way are in a much stronger position to control their communications agenda by selectively placing the right story, with the right journalist, in the right media, at the right time. Relationship is also critical –the more a journalist understands the positives about your business, alongside the goodwill you have built up with them, the more likely this will be reflected in coverage when negative issues crop up.
Creating the message
In first meetings with hedge funds I always ask the question: what sets your firm apart? Most often this is met with a pause and then a discussion to try and reach some consensus. It’s a simple question, but often results in a rather convoluted answer.
Henry Kissinger famously began his press conferences by saying: “Does anyone have any questions for my answers?” An interview, or in fact an investor meeting, doesn’t start with the first question, it starts with the first answer. And knowing what you want to say as an organisation, your story, your positioning and messages, plus your answers to potentially difficult questions, is the absolute starting point of effective communication.
The majority of hedge funds I meet have spent a considerable amount of time considering their story. However, a difficulty many experience is that they are often too close to it to offer optimal clarity and structure. A structure one commonly sees is the timeline approach – running through the business and the fund’s development and performance since inception, talking through the highs and lows along the way, in an attempt to explain where it is today. The problem with this approach is that it is essentially trying to explain where you are going by where you have been. What investors are looking for is confidence around the business and the prospect of future returns. To get a take on this they look at the durability of the investment strategy. They also examine the institutionalisation of the business and whether better infrastructure, risk management and any revised investment approach are delivering. The story therefore needs to be focused around where the business is going and why it is going to get there, using past developments and successes as proofs to this story. The best way of doing this is to develop a clear structure to the story and create the strongest possible message in-house, which can then be used by everyone in the organisation to articulate the business.
When it comes to communicating your story the media is both friend and foe. You can either shy away from it, often without success, or you can use it strategically as an additional communications channel through which to win and retain assets. It all comes down to the effectiveness of your messaging and your PR strategy in engaging with the media and leveraging it to your advantage.
Simon Anderson is the founder of Red Star Public Relations, a communications consultancy designed for hedge fund clients. Previously, he was Global Head of Communications at Man Group and Director of Corporate Communications at M&G Investments.