How Smaller Hedge, Private Equity Funds Can Raise Capital When a Capital Raise is Premature

Truth be told, smaller and newer hedge or private equity funds have never been known for their marketing prowess. In fact, most of these managers have purposely avoided marketing their firms, choosing instead to let their strategy and performance speak for themselves. Smaller hedge or private equity funds have additional challenges that are turn-offs to investors such as their manager’s short track records, not enough assets and limited reputations.

It Takes a Deliberate Strategy to Raise Capital

Smaller hedge or private equity funds are struggling to gather assets, relying almost exclusively on word of mouth and close connections to drum up business. They’re too small with an untested track record or strategy to attract the attention of investors. Even third-party marketers – with their extensive relationships within distribution channels that include institutional investors, broker-dealer platforms, and RIAs – often believe a capital raise is premature. Short of a deliberate marketing strategy to grow their assets, smaller hedge or private equity funds are likely to become another statistic among the hundreds of funds that open and close within a few years. Specifically, hedge fund liquidations surpassed launches for four consecutive quarters, according to Pension’s and Investments.

Have a Great Story to Tell

The first step is to articulate a great story. In a highly muddled and fiercely competitive landscape, hedge or private equity funds must be able to differentiate themselves and that starts with having a great story to tell. It’s no longer enough to boast about your 30% annualized returns over the last five years. For investors seeking greater transparency and operational integrity in their funds, their decision to invest in a hedge or private equity fund is now based as much on qualitative factors as it is on quantitative factors such as investment performance.

If you want to make a compelling case for your hedge or private equity fund, you need to have a persuasive narrative that explains why and how your performance goes beyond returns. For example, does the strategy zig when the market zags? Why do you expect that will continue? Did the portfolio managers use a similar strategy, manage billions of dollars in assets and work on the same team previously? These points certainly add value to the story. The story needs to be the best it can be, which includes the way it’s developed, displayed, and delivered.

Know Your Limitations

The second step to developing an effective marketing strategy is to recognize your own limitations. In terms of marketing sophistication, hedge or private equity funds often lag far behind most other financial services. For example, it’s not uncommon for fund managers, who are used to wearing multiple hats, to try their own hands at marketing – building their own pitchbooks or enlisting their 15-year old nephew to build their website. For a business that tries to woo sophisticated investors, marketing needs to look the part of a firm competing for capital.

Put the Pieces Together

The third step to marketing success for hedge or private equity funds is to get their story out through an integrated marketing strategy that includes a high-quality website and pitchbook, thought leadership content, public relations and digital marketing. Here’s how the different components work together to amplify your story.

High-Quality Website and Pitchbook – While most hedge or private equity funds do have a website, most have no real marketing and educational value, consisting of little more than a logo and contact information. Some include a cryptic description of a “black box” investment process that leaves everything to the imagination of anyone who might visit the website. Ideally, your website and pitchbook – designed for prospect and client meetings – should provide more transparency into your institutional values, processes and human capital along with examples of thought leadership that differentiate your firm and strategy.

Thought Leadership Content – Hedge or private equity fund managers’ intellectual capital – their insights, ideas, and expertise – are their most powerful differentiator, so they need to be able to leverage it to engage their target audiences. Thought leaders are viewed as people of influence and credibility whose content is coveted by others in the field of investing. Publishing timely content on your website and then repurposing it for webcasts or news media appearances is an effective way to leverage your human capital and demonstrate your thought leadership. For compliance reasons, stay away from topics related to your hedge or private equity fund and performance. Most everything else that is relevant is fair game.

Public Relations – With a concerted public relations effort, your content can be picked up by publications that are thirsty for thought leadership. The more accessible media includes sites like Opalesque, Benzinga, SumZero, AbsoluteReturns, and MarketFolly. You may also get the attention of journalists at Wall Street Journal, Barrons, and Pension’s and Investments as well as CNBC and Bloomberg.
When you do earn positive news coverage, be sure to leverage your visibility by reposting the publication’s article on your website and use in your email marketing and social media. Plus, your exposure can open the door for speaking opportunities – locally and nationally. However, it’s highly advisable to be well-practiced at staying on message and delivering it with some private personality.

Digital Marketing – You probably have an email list of friends, family, centers-of-influence, clients and prospects. As you talk to new contacts daily, add them to the list. Send an email newsletter at least monthly that highlights your commentaries, thought leadership content, and news coverage, in addition to fact sheets. You can also post your content on your LinkedIn and Twitter profiles to build a following there. You’ll have to follow your compliance department’s rules, but digital marketing can help you drive qualified leads. Sophisticated software can identify specific leads who are engaging with your content through your website, email marketing or social media. These most warm leads should be considered for outbound phone calls.
Find a Strategic Partner

Some hedge or private equity funds eventually realize that they are better fund managers than marketers. If all else fails, some will seek a strategic partner that brings marketing and sales to the table who can acquire or adopt the fund. This way, you can focus on managing money and supporting a sales process, as opposed to the status quo. You will give up control and a portion of revenues, but you may be in a better financial position as you raise capital through the partnership.

Investment Performance is Not the Story

Smaller hedge or private equity funds with growth ambitions need to recognize that they are not likely to attract the attention of investors without a serious effort. In addition, most experienced third-party marketers won’t consider representing hedge or private equity funds until they are able to grow their assets to at least $50-100 million, $250 million or more depending on the specifics of the firm. Until they reach that institutional threshold, they are largely on their own in marketing their firm. And, smaller hedge or private equity funds that continue to rely on investment performance to attract investors are destined to languish in the bottom tier.

Implementing an effective marketing strategy is not an easy undertaking, but it is essential if you want your firm to reach the critical assets under management threshold that ensures your hedge or private equity fund can survive and thrive. Done right, the return on investment on a well-conceived strategy can propel your firm well into the future.

Dan Sondhelm is CEO of Sondhelm Partners, a firm that helps asset managers, mutual funds, ETFs, wealth managers and fintech companies grow through marketing, public relations and sales programs. Visit Dan's latest Insight articles or schedule a complimentary consultation at www.sondhelmpartners.com.

(Sent via Third Party Marketers Association)