NEW YORK: Hedge fund representatives have historically avoided journalists' questions about their company's performance, citing federal regulations that limited promotion. Yet after the Securities and Exchange Commission lifted an 80-year-old ban on advertising by private investments last week, remaining silent is no longer their only option.
Because the SEC's ruling allows hedge funds to be more open, firms must consider how to build their brand among a wider audience, financial PR executives say. Many of those execs cite an increase in incoming calls from hedge funds and private investments looking to wade deeper into PR and marketing for the first time.
“Hedge funds are the emerging market of marketing,” says Jennifer Prosek, managing partner at Prosek Partners. “They have had their toes dipped in the PR world, but on the crisis and issues management side. Now you'll see hedge funds more proactive in telling their stories and actually caring about their brands.”
Last Wednesday, the SEC voted to uphold a rule included in the Jumpstart Our Business Startups Act that would allow hedge funds, private equity firms, and other private investments to promote their products to the general public.
Over time, hedge-fund managers have gone from being small players in financial markets to playing a more prominent role and becoming more accessible to the investing public. Though hedge funds are still allowed to sell only to accredited investors, the SEC's ruling further relaxes guidelines on how much they can communicate about their offerings.
“The big wake-up call [with the ruling] is that brand building in the hedge-fund space is important,” Prosek adds. “Figure out what your brand, message, and story are. These rudimentary things have not been done in this community.”
Some financial PR experts expect hedge funds to take a “wait-and-see” approach on promotion following the SEC's decision. Because restrictions remain on who can invest in funds, companies have to be careful about marketing themselves to the wrong audience, communications experts say.
“Funds and other folks need to weigh carefully whether they want to engage in these new opportunities, and think about what works for them based on their investment strategy,” says Bill Burton, EVP and MD at Global Strategy Group. “My guess is people are going to move slowly, and the ones who don't face the risk of running into big problems.”
In other words, “don't expect to see a hedge fund ad at the Super Bowl anytime soon,” says Scott Sunshine, partner at Water & Wall.
Sunshine says that unless marketing is necessary for a hedge fund's growth, keeping a low profile could be more beneficial to a company in terms of attracting the right kind of investor.
“For alternative investment vehicles, being the name that is whispered at cocktail parties still has the same cachet as it did 20 years ago,” he says. “Advertising could commoditize your brand and reach a lot of people who have no business investing anyway. There's cachet to being a hedge fund that only sophisticated investors know about.”
Mid-size and smaller firms that find it more difficult to raise money will be more likely to take advantage of the SEC's ruling, Sunshine and others say. The JOBS Act, which includes the rule, is intended to bolster small businesses and create jobs after the financial crisis.
“The competition for capital is going to be a lot more intense,” says Rob Berick, MD at Falls Communications. “Dealmakers are going to have to become a lot more marketing savvy. The folks who will benefit are the ones who step beyond their comfort zone and think about how they're going to create a different voice to stand out.”
Because the SEC's decision will open more opportunities to qualified investors, hedge funds should be proactive in developing a communications strategy to stand out from the competition, says John McInerney, group VP at Makovsky.
“Plan and walk before you run, but don't wait to see your competition do it,” he advises. “By the time you see your competition doing it, they've already made their plans and strategic decisions, and they're out front.”