By Hannah Smith – Edgefolio: The investor landscape for hedge funds has evolved in recent years. There has been a significant increase in allocations from a variety of institutional investors, in part driven by the search for higher returns in a low-yield environment.
Regulatory changes have increased transparency and reporting requirements for hedge funds, making them more attractive to these institutional investors, who may have previously been hesitant due to concerns about opacity.
At the same time, high-net-worth families and individuals are increasingly turning to hedge funds as a key component of their investment strategy.
These investors do not have the same risk appetites, communication preferences, decision-making processes, or underlying values. This article will consider how hedge fund marketers can tackle this diversification of potential investors when building their strategy.
Pension funds collect money to pay retirement benefits, so their primary goal is to generate stable long-term returns and protect their capital. Pension funds are focused on:
Risk management. Pension funds prefer a conservative approach, valuing commitment to stability, consistent performance, and rigorous risk management. Focus on these attributes, and make this information readily available.
Information and transparency. Pension funds make decisions through committees or boards that consume large amounts of fund information. Lean into stable returns with consistent Sharpe ratios and demonstrate risk management and long-term growth potential through historical cycles.
SWFs are state-owned investment funds. They often invest in alternatives, including hedge funds, as they look to find a home for their (often substantial) portfolio balances. SWFs are focused on:
Innovation. They seek out unique investment strategies within alternative asset classes, and fund marketing should underscore the unique value proposition and innovative approach.
These organisations manage portfolios to support their non-profit activities and often seek a balance between immediate income needs and long-term sustainability. Endowments and foundations are focused on:
Environmental, Social, and Governance (ESG). They will want assurance that any fund they invest into is aligned with (or at least is not at odds with) their internal mission, strategy, and governance.
Managing the wealth of ultra-high-net-worth individuals (UHNWIs) or families, these entities value tailored strategies that reflect their investors’ specific wealth preservation and growth objectives. Family offices value:
Personalisation and customisation. This is true for both service and investment strategies, and they cannot be targeted with a “one-size-fits-all” model.
These are investment funds that hold a portfolio of other funds to diversify risk across multiple strategies. Funds of hedge funds are focused on:
Data. They want detailed data on past performance, risk management and the overall strategy as well as peer analysis reports.
These are wealthy individual investors looking to hedge funds for novel investment opportunities. HNWIs are focused on:
Innovation. HNWIs are open to taking on more risk for the potential of higher returns and are attracted by dynamic, forward-thinking investment strategies. They will be swayed by brand values and trends among their peers.
Exclusivity. They are excited by investment opportunities that are not widely available. HNWIs expect personal relationships and bespoke services.
Hedge fund marketers face a lot of complexity when building their marketing strategy. First, they have to cater to this diversity in values and requirements. On top of this, where regulations dictate that hedge funds cannot market themselves to the general public, they will need to find a secure way to distribute information to the right audience.
Tackling this requirement by reducing the volume of information made available will rule out some investors who value transparency and insight. As mentioned at the start of this paper, improvements in transparency and reporting have attracted many “new” investors to hedge funds, so funds would be wise to double down on this as a selling point, rather than shy away from it.
Fortunately for fund marketers, technology is a huge enabler and is revolutionising how funds can market themselves. Specialised fund marketing systems are increasingly commonplace, and offer far greater compliance and personalisation with efficiency and automation.
First, a fund marketing system ensures that only the right audience can access the appropriate information. All sensitive or restricted information is held on an investor portal, which is fully gated. This enables a fund to broadly promote its existence and high-level brand, and share a link to the gated portal which also handles the requirements of different jurisdictions.
Second, the fund marketing system holds a large amount of data that most investor types will be interested in. Performance and thought leadership across newsletters, papers, articles, podcasts, and videos can be accessed on demand, letting the investor advance their journey independently and at a pace that suits them.
Third, the fund marketing system lets the fund manager target the right investor with the right message at the right moment. Using the integrated CRM and mailing tool, a fund manager can segment their audience to enable a high degree of personalisation. This means a variety of investors can be targeted with the right message for them without compromising scale and efficiency.
Finally, the fund marketing system provides detailed analytics letting the fund marketer identify what is working and with which investor segment(s). The team can see those specific individual investors who have engaged most to advance the relationship when the time is right. The engagement analytics coupled with the broader fund marketing system feature set delivers a powerful workflow for fund marketers.
Successful hedge fund marketing is a complex endeavour, demanding stringent adherence to regulatory requirements, and skillful management of a variety of investor relationships. Hedge fund marketers need to constantly maintain their knowledge of regulatory requirements and evolving investor expectations, and use these as a foundation for their marketing strategy.
Today’s fund marketing involves effective branding, strategic and targeted messaging, and a variety of channels including tight personal connections. To try to pull this together manually puts hedge funds at an unnecessary disadvantage when the technology exists to do much of the heavy lifting. Fund marketers can then focus on developing a deep understanding of each investor’s specific needs, objectives, and risk tolerance to develop messaging that resonates. They should take advantage of the right technology to execute this plan, deliver an excellent investor experience, bring in one-to-one communication as needed, and feed data back into the business to help further develop the overall marketing strategy.