Hedge funds must establish themselves as solid brands especially in a crowded marketplace, said Vincent Au, Vincent Au, the Portfolio Manager at New York-based hedge fund management firm Gondor Capital Management. And this is more important for start-up hedge fund managers and smaller funds who must recognize that their brand is their most valuable asset.
Hedge Fund Branding
“There are more than 15,000 hedge funds crowding the marketplace across the globe offering different strategies but targeting almost the same investors,” said Au. “With the number of requests for meetings, presentations, phone calls, emails, etc from investment managers, hedge fund investors are getting a hard time filtering the amount of information and have less time evaluating each manager. More often, investors turn to hedge funds with strong brand names when choosing which fund to allocating.”
Au maintains that hedge fund managers must understand the three important steps in establishing a strong brand with the aim of raising capital in a very competitive environment. These are the quality of the fund offering, investor’s perception of the quality of the fund being offered, and the strategies involved in marketing and selling the products.
Indeed, an independent research by Donald A. Steinbrugge, managing partner at Agecroft Partners, LLC, showed that branding is an integral part of raising assets for hedge funds. Using data from Hedge Fund Research, Steinbrugge has found that the showed a large amount of hedge fund assets flowed into a small minority funds with the strongest brands, with some 69% of hedge fund assets controlled by firms with over $5bn in assets under management and 91% are controlled by firms with over $1bn in assets.
Steinbrugge explained, “A brand is an investor’s perception of the overall quality of a hedge fund based on multiple evaluation factors that evolve over time. A high-quality brand takes a long time to develop, but once achieved, it significantly enhances a firm’s ability to raise capital and retain assets during a drawdown in performance. Over time, we believe the trend concentrating a higher percentage of assets in the largest managers will reverse. We expect this to happen due to increased sophistication of institutional investors, the poor recent performance of many of the largest, well-known hedge funds, the pressure institutional investors are receiving to enhance returns and the belief that smaller, more nimble managers have an advantage in a performance environment increasingly dependent on security selection. This is especially true for small managers operating in less efficient markets or capacity constrained strategies.”
Hedge Fund Branding – A good reputation is the best brand
According to Au, because most hedge fund managers have not yet recognized the importance of a good brand, even the biggest managers would not include the word brand in their marketing strategies or even consider it important. Certainly, the so-called mega funds with billions in assets under management enjoy an advantage as the media attention and their industry presence have given them unique “brand” recall.
But establishing a good brand is more important for small hedge fund managers, Au said. Under the current market understanding, a hedge fund manager’s brand perception is based on track record (including past performance, media profile, industry presence, and other peripherals, like company logo, website, investor materials, product presentations, etc.,
However, a good brand is better described in one word: Reputation.
“Reputation is very important,” Au said. “It is the most important element when establishing a good brand name. A successful hedge fund manager can establish a solid reputation from his previous firm or at his current fund. With a good reputation, attracting capital commitment from the hedge fund investor community, or to be seeded by a reputable investor is possible.”