“It Takes 20 Years To Build a Reputation and Five Minutes To Ruin It”

Why hedge fund managers need to think harder about media relations

Eoin Brophy, Partner, Hume Brophy Communications
Originally published in the February/March 2006 issue

It is oft remarked that just because you're paranoid it doesn't mean 'they' are not out to get you. That statement is never more accurate than when observing the worst of mainstream media perceptions of the hedge fund industry.

In the worst excesses of these articles, hedge funds are bent on world destruction. Whether bringing down a country's currency, the level of regulation, the volatility of returns or short termism, hedge funds can be often erroneously depicted as risky and esoteric investment vehicles that are best avoided.

Uninformed prejudice? Perhaps. Nonetheless, up until quite recently, the industry-at-large has not done enough to try and change this perception. It has been on the mainstream media ropes for some time now, reluctant to punch its way out of trouble.

Recognising the benefits

It is fair to say that hedge funds are traditionally more guarded than other companies in the financial services industry. For varying reasons, a majority of companies in the industry haven't recognized the necessity for, or benefit, of PR. Either they are already hugely successful, and have no remaining capacity in their funds, or, they do have no interest in divulging their strategy and approach. Fair enough, but it doesn't discourage the perception of the hedge fund industry as secretive and non-transparent. However, there are signs that the industry is waking up to the advantages of being a bit more vocal.

So, why use PR? What are the benefits of a well-thought out and executed public relations strategy, and how is it best handled?

The first question is easy to answer. In 1990 there were 530 hedge funds worldwide. There are now close to 10,000. This market growth and increased competition means it is more important than ever for firms to get their name and product recognized – to stand apart from other managers. Competition for investors has never been higher. Hence, PR can significantly differentiate and strengthen a company's sales and distribution strategy and help to attract investors into its funds.

Secondly, PR is essentially common sense. It is certainly not rocket science. Like any other element of business, good communications also requires a plan,clearly defined objectives, a strategy, audiences, tactics, timings, a budget, and some means of measuring success (or failure) at the end. One of the most important (and some might say complex) of these audiences is the media.

Similar to many companies, across many industries, a lot of hedge funds view the media with distrust. It is a truism that people would rather read about what went wrong than what went right, and the press almost certainly prefers to write about the downside. However, when dealt with properly and equitably, the press is a very valuable conduit for a company to deliver its positive messages quickly and directly to its target audiences.

Companies have also woken up to the adage that he who wins in a down market wins. This is true today on many levels within the hedge fund industry, not the least of which is managing press relations to your advantage.

Let me explain: if a company is trying to define and lead a market, a down, quiet market is a great opportunity to take the time to educate investors. That this education by the hedge fund industry is needed has never been so glaringly obvious. In other words, hedge fund managers (or indeed service providers) that are willing to stick their heads above the parapet and show some industry leadership can gain significant early mover market advantages.

So, how can managers go about building a successful and fruitful relationship with the media? Firstly, and most importantly, it is necessary to create a co-dependency. Strong relationships with the press are the cornerstone of quality media communications. While this will involve a certain level of time input, it will put the correct building blocks in place. The press can need you as much as you need them. Journalists are always looking for story ideas and topics to write about. By alerting them to or sharing with them, news or industry issues, you suddenly become a source that they can rely on. Be open, and, most importantly, honest with them.

"Avoiding the press is not viable"

It is also important not to shut the media out just because you have had a bad experience with a journalist. Because of the enormous year-on-year growth of the industry, the media is inevitably going to increase its coverage of hedge funds. Avoiding the press is not viable. Learn how to manage it.

I referred earlier to the notion of being successful in down markets. Journalists are wary of companies who communicate only when there is good news to report. You earn respect and credibility by being willing to discuss potentially negative news and by always making yourself available – in the good times and bad. Frankly, it also offers a company the opportunity to give its side of the story. Always look for the opportunity to have your say and put your argument across. News is news, and the probability of it being reported is quite likely, regardless of how you feel about it.

In addition to building ongoing contact and relationships with the press, and dealing with everyday media flow, savvy companies will look to put in place some sort of crisis or contingency planning. Think about the things that might trigger bad publicity for the business. Even the best run, most successful businesses can bear the brunt of bad publicity. It only takes one disgruntled customer to go to a newspaper; one aggrieved employee to post something on the Internet; or one unforeseen disaster to occur and suddenly your business's reputation is endangered. The key to handling such a crisis effectively is to put plans in place before it actually happens. Proper planning and procedures reduces the negative effects every time. Be prepared.

Generally speaking, people are frightened of the media and there is simply no need to be. People wrongly assume that journalists are out to get them. They are simply there to do a job and report the news. Ultimately, all the elaborate business plans, innovative ideas and strategic savvy are meaningless if you don't have a good reputation in the eyes of your customer. A solid reputation is what gives people the confidence to do business with you and, importantly, helps you to weather the tough times.

An effective PR strategy can go a long way to bolstering a company's reputation. This will provide undisputable benefits during the good times and will also help when things aren't going so well. In which case, investors are more likely remain loyal during this time. As Warren Buffet said: "It takes 20 years to build a reputation and five minutes to ruin it. Remember that and you'll do things differently."!

Eoin Brophy is Gartmore's former hedge fund PR supremo. He is now a Partner at Hume Brophy Communications, an independent strategic communications and public affairs consultancy. Hume Brophy specialises in helping hedge fund managers and service providers to build their profiles within the European hedge fund and general investment industries.