Managers Walk a Fine Line to Build Brand
Managers Walk a Fine Line to Build Brand
Chidem Kurdas, New York Bureau Chief
13 August 2008
This is the seventh in a series of articles on raising money for hedge funds.
NEW YORK (HedgeWorld.com)—A major barrier for new managers trying to raise money in the United States is that they are not supposed to publicly solicit clients, even if those clients meet the legal requirements for investing in hedge funds. A hedge fund's shares are sold in a private placement and can't be advertised.
Yet, as a public relations veteran pointed out, building a brand has become important because large investors do consider reputation and an institutional approach in deciding whether to fund a manager. And getting it wrong can damage a manager's business.
How can managers use the media to make themselves known to potential clients? HedgeWorld asked several public relations experts with hedge fund experience: Richard Dukas of Dukas Public Relations, William Blase of W. T. Blase and Armel Leslie of Walek & Associates.
HedgeWorld also requested a legal perspective from Edwin Laurenson of law firm McDermott Will and Emery. The interviews were done separately.
HedgeWorld: Hedge fund firms are not public companies, so why should a manager even think of public relations?
Armel Leslie: One way to answer that is to look at hedge fund news coverage. A couple of years back we found that when you searched media databases for "hedge fund," you got 100 articles per day. Now we're updating that research and the number is double what it was. Managers do not have the option to ignore the press. The issue is how to manage the media and make it part of your communications strategy, to support marketing and client communications.
Richard Dukas: There are various ways of getting known to investors—such as presenting at conferences, getting into databases, talking with brokers. But public relations, done right, is a cost effective and powerful way for managers to communicate some of their messages to interested parties. No, they can't go on CNBC and say, now is a great time to invest in my fund. But they are allowed to talk about their views on markets and deals. By doing so, they position themselves as thought leaders, as intelligent investors with an interesting point of view.
William Blase: Every business has to build a brand. People have to know who you are, what you do and how you differ from your competitors. It used to be said that hedge funds raised money primarily from family and friends, but now large funds of funds and hedge funds compete for the same dollars. It's a very competitive market.
HW: How do you go about developing a public image for a hedge fund?
WB: We've helped many fund clients build a brand, often from scratch. A case in point—a global macro manager who launched a few years ago. We identified topics they could speak to on industry issues, the markets and their strategy. Although they could not speak about the fund, they developed a platinum brand and reputation as "go-to" experts on global macro trends and economic events. Their fund grew.
HW: What other topics can fund people talk about in the media?
RD: We have clients that make asset-based loans. They look for interesting companies to lend to. How will they get their message to these companies that the lending window is open? They have their contact networks, but PR is great way to reach a broader audience. We also represent hedge funds in merger arbitrage, where they have opportunities to talk about what needs to happen for a deal to get done.
HW: What about the legal restrictions on private placement?
AL: We work very closely with legal counsel and don't take unnecessary risk. As a general rule, we focus on markets and strategies that our clients are experts in. We don't talk about their funds or performance.
HW: Let's ask the lawyer. What do you tell a client who asks if there is any legal problem about him discussing his investment strategy on CNBC?
Edwin Laurenson: That's the kind of thing people don't always consult their lawyers about, because they may not want to hear what they cannot do. If I am consulted, I say funds managers can't say things in public to sell fund interests and shouldn't accept subscriptions from potential investors who come to them as a result of general publicity like a TV appearance to discuss market developments, even though there was nothing in the interview that might be construed as a solicitation of investments. But there are grey areas. The practice does not always correspond to the interpretations of the Securities and Exchange Commission, even though the SEC and state securities commissioners do periodically go after people when there are obvious violations.
HW: Haven't there been attempts to change this?
EL: Over the years there have been proposals to clarify the issue. In my view it should not be a matter of whether there is general solicitation but rather who is investing: as long as the investors meet the relevant criteria, public disclosure of information should be irrelevant. But even if that approach is ultimately adopted in some way, it's likely to be limited to 3(c)(7) (qualified purchaser) funds or some other similarly restricted group, not applicable to all private offerings to accredited investors. The area remains a mess.
HW: What do you advise hedge fund managers about situations where they face bad news such as losses or large redemptions?
WB: The goal is not just to raise assets but also retain assets. If you are going to succeed, you need to put a media relations infrastructure in place before a crisis hits, because it takes time to build trust. Handling contingencies after the fact is very difficult.
RD: If you can stay ahead of the story and explain to the press in a reasonable way what's happening, they're less likely to slam you. The worst thing a hedge fund can do during a bad time is to hide under a rock. Then people will think that you have something to hide.
AL: If you help reporters understand the full picture, they can put current events into context. The goal is to show that you have a sustainable, long-term business and this is just a difficult period.
HW: What are the challenges?
WB: With new hedge funds, occasionally people see developing a PR program as something akin to ordering stationary. It's never that easy. A good PR person will understand the strategy and the business—it's not just a matter of smiling and dialing. First-time managers should work with people who have experience with hedge funds. Every detail is important and has to be done right.
RD: Many hedge fund people think the press is out to get them, so they want to stay below the radar. In fact the press needs you to write stories so they want to foster good relations with you. But you need someone to manage your press relations.