By Zach Kouwe
This week the Securities and Exchange Commission issued an update to their socialmedia guidelines regarding filing requirements under the Investment Company Act and other statutes. Overall, it appears the Commission wants to foster a more lenient regulatory environment on Twitter and other social platforms so investment companies aren’t stifled from using this new form of marketing and communication.
The update makes clear that the sharing relevant links, stories, white papers and other non-fund-related things over Twitter and other platforms are exempt from filing requirements. Here’s an example of a Tweet that is acceptable:
“Consumer Reports has written an article in which it mentions our ‘Brand X’ Rewards Card. Are you a member?”
“The ‘Low Volatility Anomaly’ is explained in our latest white paper LINK”
Even mentioning the word “performance” or sharing a link back to a website that includes fund performance data is exempt from filing requirements. Stating specific performance data in the communication still needs to be filed. (ie. Fund X achieved a 3 month return of XX%) These new guidelines should allow asset management firms and other investment companies more leeway to communicate and influence via social media.
Many large alternative and traditional asset managers such as The Carlyle Group,Blackstone Group, Pimco, Blackrock and State Street are already using Twitter as a public relations tool to build their brands and communicate their thought leadership. (Pimco already has over 100,000 followers) While these large firms have the resources and extensive compliance departments to ensure adherence to the rules, these new guidelines make basic sharing of information on social media a much less burdensome activity. Every asset manager that aims to be an influencer in the community should be participating.
By Zach KouweI recently stumbled upon a new survey of what institutional investors look for in their hedge fund managers. The survey, from fund administrator SEI, was particularly interesting because it covered what investors think about a particular firm’s “brand” identity and how that factors into their decision to invest in the fund.
Not surprisingly, the results were mixed with many investors seemingly confused by the question. But from investors and consultants we've spoken to, having a solid and understandable brand in the market matters whether they admit it or not. From the survey:When we asked institutional investors to define “brand,” their answers diverged. Respondents were similarly torn on the importance of brand; one-third said it makes no difference in their selection of hedge funds, one-third disagree, and one-third are neutral.
A hedge fund needs to able to describe its unique investment process in an understandable and concise way both to potential investors and the public at large. Take it from Bruce Frumerman, CEO of investment management industry communications and sales marketing consultancy, Frumerman & Nemeth Inc. from the survey:“You know your firm has graduated from commodity to brand when, after stating your fund’s name and strategy category, a prospect can add two or three sentences of elaboration about how you invest," he says. “If a hedge fund doesn’t actively market its investment- process story, it won’t outgrow being perceived as a replaceable commodity, known only by the pigeon-hole category of its strategy and its most recent returns."
This can apply not just for hedge funds, but for any type of investment product or service. Money managers across the board, whether they manage institutional or retail capital, are becoming much more scrutinized. If they can't define their clear narrative, they won't be able to distinguish themselves. Hedge fund managers in particular can’t just sit back and rely on their track record – indeed the survey points out that investment performance is not even the most important factor when investors choose a fund. (This is already starting
in the hedge fund world)“There are those who get it right, and gather billions in assets, and those with no idea of how to get their message across. They just use the same mumbled jargon and rarely convey what is actually happening. Marketers who think they don’t need to put it down on paper and convince others their process makes sense will get nowhere,” declared a managing director at a large European institutional investor. Our panelists also emphasized how important it is to spend the time and resources needed to make complex processes clear and simple. “Explaining simply just what it is you do is the single greatest feat for hedge funds,” said Michael Green, CEO, International with American Century Investments.
By Zach Kouwe
Numerous advertising executives have offered
marketing advice for hedge funds hoping to expand their client base. Some key terms that are circulating amongst the experts are “transparency,” “access” and “performance.”
Rob Reilly of Crispin, Porter & Bogusky said:
“They have to find a way to be more transparent. They need to be honest and show how the money is made and how their process works.”
He explained that although many hedge funds would find this disclosure unsettling, or even unmanageable, increased sharing contributes greatly to compelling marketing campaigns. Ads and campaigns in today’s industries are often extremely flashy and loud. Experts suggest that hedge funds find a healthy medium.
“I wouldn’t invent talking babies or clever mnemonics; I’d be very straight forward about it,” explained Butler, Shine, Stern & Partners’ John Butler.
For example, Mr. Reilly suggests that a firm broadcast a town-hall meeting on the official website, or even YouTube. The hedge fund’s executives could then publically answer questions from current, past, and potential investors.
By Zach Kouwe
Despite news reports
earlier this month that the Securities and Exchange Commission was poised to delay important changes to marketing rules for hedge funds and other alternative investment funds, the S.E.C. published proposed rules
yesterday that will have a significant impact on how hedge funds speak to the public and market themselves to prospective investors.
Both public relations professionals and reporters alike have quietly advocated for the loosening of these regulations, which have prevented hedge fund managers from talking publicly about their performance, investment strategies and even mentioning simple facts about their fund structure and fees. Now, if this new proposal becomes the law, more transparency will come to the hedge fund industry. Dukas Public Relations
, which prides itself on transparent and open relationships between its clients and the media, will be submitting a comment letter to the S.E.C. in support of the proposed rule. (Our letter will be available here and via the S.E.C.’s website soon.)
We believe this change will be welcomed by hedge fund reporters in particular, who often find it difficult to obtain simple information from hedge fund managers and the industry in general. Based on our conversations with clients and prospects, managers also support this change because most want to respond to reporters’ questions but fear running afoul of the rules. Even some managers who want to correct simple inaccuracies in the media can’t do so under the current regulations.
While some hedge funds and marketing execs have talked
of full-fledged advertising campaigns, we believe most firms will opt to ramp up their public relations initiatives rather than buy ads in print publications or sponsor sports stadiums. While not opposed to advertising, we think engaging with the media and the public at large is the best way for the hedge fund industry to become more transparent and better understood. As a PR agency for hedge funds, we look forward to seeing this proposed rule become law.
Here's part of an interesting blog post by Richard Dukas, CEO of Dukas Public Relations, a financial PR firm in New York. It talks about hedge funds and other alternative investment firms beginning to open up to the media.
A recent article in the New York Times by Nelson Schwartz illustrates my point. Mark Lasry of Avenue Capital (not a client of Dukas Public Relations ) openly discusses his bet on a European turnaround. He talks about how much of his fund’s capital he’s investing, why and his return expectations. (On the same day, the Times ran a story about famed venture capitalist Marc Andreessen and his firm’s willingness to speak to the press despite being part of an industry that shuns it.)
By Zach Kouwe
At long last, an arcane S.E.C. rule that has impeded PR people and reporters for some time appears
to be on its way out. The rule, known as 502(c) of Regulation D, prevents anyone raising capital for a private investment fund, such as a hedge fund or private equity vehicle, to market or advertise to “non-qualified” investors, basically people with less than $1 million in net worth.
In addition to a ban on traditional advertising, the rule means hedge fund managers have to be extremely careful not to actively solicit investors when speaking to the media. Most lawyers, who are generally conservative when dealing with S.E.C. rules, interpret this to mean that managers can’t discuss performance with the press and are forced to be generally cagey about their operations. In part, this has led to a hedge fund industry that has been described as “secretive” or “in the shadows.”
If passed as part of the Obama Administration’s Jobs Act, which seems likely in early April, the S.E.C. would have 90 days to implement the changes. The Managed Funds Association
, the hedge fund industry’s primary trade association, recently came out in favor of this change in a letter
to the S.E.C. On the other side is the Investment Company Institute
, the mutual fund and ETF industry’s primary trade association. In a February letter
, they urged the S.E.C. not to change the rule, which they said would harm investors and could lead to scams that target unsophisticated investors.
It will be interesting to see how the S.E.C. implements the law. However it comes out seems likely to change the way hedge funds and private equity firms communicate with the media and the public at large. Here’s Robert Kiggins, a lawyer at McCarthy Fingar, with his views on the law in Hedge Funds Review
:“This is a potential game changer,” says Robert Kiggins, counsel at the law firm McCarthy Fingar. “Subject to the SEC rule-making, this means hedge funds can promote and market their products through mass media channels, from television adverts to newspapers articles and websites.”
By Zach Kouwe
There’s been a lot of talk recently about pension funds being drastically underfunded. Some studies
peg the funding gap for state and local pensions at more than $1 trillion. To make up the gap, pensions either have to force their members to contribute more, cut back on benefits or make it up by earning returns in the market. (Sounds like social security, doesn't it?)
For now, it looks like pensions are turning
to the market, specifically hedge funds, to boost returns despite less than stellar performance from the sector in 2011. Some states, like South Carolina, are actually cutting back
their hedge fund allocations. But just over the border, North Carolina’s pensions system, which is pouring
billions into the alternative space, is more emblematic of the rest of the nation. Some
warn of dangers ahead if pensions try to juice their returns by taking on more risk. Others
argue that even a modest allocation to hedge funds by pubic pensions could unlock $13 billion in annual returns and actually reduce risk by investing in assets that are uncorrelated to the market as a whole. It’ll be interesting to see who comes out ahead in the debate. But one thing we know for sure, pension funds are already lowering
their return expectations -- a sign they don't expect huge returns from the market itself.
Further reading – Pensions Investing with Fingers Crossed and Eyes Closed via CNBC.com
(Op-ed from Mebane Faber of Cambria Investment Management)