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
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
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 raise
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 position.
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