February 22, 2013
Beth Wiener, Partner-in-Charge, Alternative Investment Group, Interviewed by HedgeComm: "The Do's and Don'ts of Hedge Fund Marketing: Lessons Fund Managers Can Learn from a Service Provider"
By Will Thompson
Hedge fund managers will have the chance to market and advertise their funds once the JOBS Act rules are finalized. To get some insight into what managers should do to be better marketers and some pitfalls to avoid, we chatted with Beth Wiener of Marcum LLP. Beth is in a good position to know. Not only is she in charge of marketing her accounting firm's services to hedge funds, but she has also critiqued numerous presentations by her hedge funds clients over a 20-plus year career.
HedgeComm: What mistakes do hedge fund managers make in their marketing and capital-raising efforts?
Beth: Many new fund managers have a time frame in mind that is often unrealistic. They don't have a clear understanding of what it will take to achieve their goals, so their expectations are out of line. They may know a lot of potential investors, but getting investors to commit capital takes much longer than they think it will. This is especially true now, given how hard it is to raise capital. They need to plan for the fact that their marketing efforts may take much longer, be far harder and require more resources than they had anticipated.
HedgeComm: One of the most critical factors to successful marketing is differentiating your product from the competition. How can a hedge fund with a popular investment strategy, say long/short equity, set itself apart?
Beth: Beyond being prepared when meeting an investor and knowing the sales pitch cold, there are several additional things a fund manager should have in place to establish the fund's credentials:
- A well-prepared pitch book that has been critiqued by others in the hedge fund industry and vetted by marketing people.
- A rehearsed presentation that comes in both long and short versions. It's really important for managers to read their audience to determine how long they should talk. For instance, if the meeting is just introductory, a shorter presentation is usually better. If the manager gets through the first round, he or she should be prepared with a more in-depth presentation for the second round.
- A track record of at least a year that has been verified by an independent accountant so the manager can say, "This has been my performance for the past year and an independent accountant has confirmed it."
- A business plan for the management company that goes out three to five years and that includes a budget. Investors want to see how a hedge fund manager is going to run the business. Generally, emerging managers are coming from a shop with an infrastructure in place. Now, in addition to investing, these emerging managers are tasked with running the business and securing capital. It's often very challenging. Over the last six months, of the many new managers I have met with, only two have shown me a business plan. So having a business plan is one way to differentiate yourself and your firm.
- An organizational plan that shows who's on your team now, future positions and the roles these people will play. That shows you're prepared for what's coming. Investors also want to see this because, if you are the star– the one who is generating the returns—they want to know who will be running other aspects of the business.
- A road map showing internal controls. Investors want to know how you will safeguard their assets, comply with regulators or recover after a disaster, for example. Investors will be more comfortable with a fund that has thought through these questions and provided comprehensive answers.
- A reporting framework that shows the level of reporting and the frequency. How transparent will you be?