By Robert Birnbaum
The marketing arms race is about to come to hedge funds.
And, with the Securities and Exchange Commission’s
landmark decision to lift the 80-year-old ban on publicizing
hedge funds, and how they raise money, the industry may never
be the same. As Yogi Berra might say, "It’s deja
vu all over again."
Once, mutual funds hardly advertised, and even those that
did spent a pittance by today’s standards. Now of
course established brands like Fidelity and T. Rowe Price
advertise significantly to grow and protect their businesses,
and newer entrants like Wisdom Tree and iShares use marketing
to grab market share and help achieve business success.
Institutional money managers, like JP Morgan, Pimco and
State Street, which once considered marketing and brand
management as beneath them, now invest significantly in
marketing to support their institutional business as well as
newer ventures like mutual funds and financial advisory
It’s not just advertising and sponsoring golf
tournaments, of course. Social media and other internet
activities play a huge role.
Marketing, by the way, is not sales, although in our
business salespeople frequently like to call themselves
marketers. Marketing is about brand, competitive positioning,
the ongoing stream of communications that can help create
awareness, trust, and confidence in you and your firm. It makes
sales more effective. Marketing provides leverage to everything
you have created and enhances and protects your business.
Is marketing the most important thing? Of course not.
Performance is primary, and client service and sales are right
up there. Marketing accrues value to your business over time,
which makes marketing an ideal investment for an annuity-type
business like a hedge fund.
The established fund
Do you have to join the marketing arms race? Eventually,
yes. Do you want to join early or later?
Marketing can protect your position against new entrants and
fuel more growth. Given your margins, the cost becomes
negligible. Marketing refines your brand. Enhances it. Protects
it from competition.
But we’re institutional! Does marketing matter?
Well, yes. Brand might matter more in institutional
than in retail. You already know that. You use brand name audit
firms. You use brand name law firms. To do otherwise would
The phenomenon of concentration of assets is about
performance, size and brand, because the biggest do
not always have the best performance, whether absolute or
risk-adjusted. Marketing can make that phenomenon work for
Stakes are high. What will your clients think? Clients want
to see that you are managing your business well, which includes
managing your brand. But how you do it is critical.
You want your marketing first and foremost to enhance your
clients’ relationships with you. Clients also know
you are in a people business and to retain and attract talent
you need to pay them appropriately and provide opportunities
for growth. Which means you need business success.
BlackRock’s business success has many elements,
and marketing has certainly been one. They are investing
heavily in positioning themselves as a thought-leader. In a
relatively short time (by institutional standards) they went
from a start-up to one of the world's largest money managers.
Marketing has been completely consistent with sophisticated
investment strategies. And BlackRock’s older
competitors may now find themselves somewhat displaced in their
once highly secure client relations.
The new fund
If you are new, either a startup or a fund that has been
around for a year or two establishing a track record and now
wanting to grow, marketing will be one more cost of doing
You need awareness. You need to be able to cut through the
noise at an investor conference. You need your prime
broker’s capital introduction people to find
success when they bring up your fund to their contacts. You
need analysts at potential clients and consultants to
want to meet with you. When you get that precious
meeting, you need to know that your presentation positions you
effectively. And you need the stream of communications, from
the RFP to the follow-up letters to the website to the
performance reports, to get noticed, get read, and communicate
what you need.
You get one shot to introduce yourself to the marketplace.
At a certain point in time, if you are not successful in
raising significant capital, that becomes your
reality—you become the house on the street that is
difficult to sell. Don’t let yourself get in that
When does the race begin?
When a large fund embarks upon a multimillion-dollar
advertising and marketing campaign, competitors will
"market-up." When a smaller fund devotes precious resources to
marketing and get results, others will join the battle. We live
in a pretty fast moving world and in an industry filled with
hyper-competitive people with resources, so it could start
Should you be a leader or a follower in the marketing arms
race? If the ingredients are there for significant further
business success--reasonable performance, a repeatable
investment process, and budget--then lead. You can gain more
assets and secure your competitive positioning. If you
don’t have those ingredients right now, then work
on them--you may still have some time. Later, you
won’t have a choice--you will have to participate
to have a long-term viable business.
So where do you start?
You are still in a regulated industry with technically
demanding products. You need compliant-friendly effective
marketing. So you need people who understand marketing,
compliance, and investments.
You accept that marketing can provide leverage to your
business, and you understand leverage---its costs, benefits,
and risks-- but unlike financial leverage, you
can’t go to your friendly investment bank and
negotiate a line of marketing credit. Marketing is a process,
its output is a position as well as the materials (electronic
and print) and activities which express that position. It
requires research, often an outsider’s look at
your business, enough financial market education/experience to
understand your investment proposition, and the skill to get to
its essence and effectively and creatively express it. Like any
other desirable and valuable resource, it is scarce. Twenty
years from now there will be many people with the right
experience, because they will have done marketing for hedge
funds. Today there are not.
Robert Birnbaum is a veteran
of the asset management industry. He was President of hedge
fund Third Wave Global Investors, head of the mutual fund
business at Fred Alger Management and has held executive asset
management roles at JP Morgan Investment Management, Credit
Suisse Asset Management, Columbia Management, and