I would start this article the same way I start all conversations about hedge fund marketing, with a simple disclaimer: I am not a lawyer; this is not legal advice.
What I am is a public relations professional with more than twenty years of experience in representing asset management firms. During that time, I have witnessed, and through our firm supported, the extraordinary rise of both the mutual fund and exchange-traded fund industries. This rising tide lifted many boats. New magazines and websites were launched, reporters were hired, and advertising and branding firms were founded to meet the enormous demand for financial services marketing expertise. It has been a tremendously exciting couple of decades.
Over the last few years, I have seen the hedge fund industry moving along a somewhat similar path asnew funds were launched and fund managers grappled with growth and the need to attract new assets. As with mutual funds, new publications have sprung up to cover the alternative investing industry, and existing news outlets have reporters dedicated to hedge fund coverage. Where there was once a single reporter who covered the industry episodically, there are now reporting teams, covering strategies, managers, and asset flows on a daily or sometimes intra-day basis. Like many other things in modern life, the pace of these developments continues to accelerate even as the conversation moves from the private to the public arena.
But while the media world was changing, the regulatory proscriptions that governed interaction with that world were not. The prohibition on advertising has always been clear. However, unlike mutual funds and ETFs, the ground rules for hedge fund managers interacting with reporters have remained more opaque. On the one hand, it is common to see hedge fund managers featured on the cover of major investing publications and appearing on CNBC; on the other, I have heard of funds that apparently go so far as to refuse to include a phone number on their website for fear of running afoul of the non-solicitation regulations. It’s beyond my brief to comment on which of these approaches is the correct one. As an observer, however, I think it’s fair to say that a regulatory regime that is able to incorporate two such widely varying interpretations is in need of some clarification.
The net result has been a decision by most managers to avoid the press altogether. There are at present roughly 9,500 hedge funds and fund of funds, and hundreds of new funds are launched every year. On the evidence, most of the managers of these funds appear to view marketing as akin to grabbing a dangling wire: it may or may not be live, but why risk getting burned to find out? The media, of course, is governed by a different set of rules. Backed by the First Amendment they can write whatever they want, as long as it’s accurate. This has set up a tension between the two sides that until recently showed few signs of being resolved.
Now along comes the recently signed JOBS Act, which includes proposed clarifying language with regards to the solicitation issue. From what I have read, it recommends allowing hedge funds to market more freely while continuing to restrict investment in the funds to accredited investors and qualified institutions. This is imminently sensible. After all, no matter how many times you see a hedge fund manager on CNBC, you can’t invest just by dropping a check in the mail; at a minimum, you still have to meet the threshold criteria as defined by law.
What this will lead to remains anyone’s guess. Many hedge fund managers will no doubt continue to prefer to stay out of the limelight. Others may see an advantage in publicizing their investment strategy, market outlook, and historic performance. If history is any guide, there is certainly leverage to be had, in terms of reaching new audiences. At the moment, the conventional wisdom has it that the smaller, newer funds may be the more enthusiastic adopters of the opportunity to market more broadly. This may open the door for qualified investors to discover managers and funds that were previously unknown to them. Time will tell.
The growth of the mutual fund industry supported the creation of thousands of allied jobs in publishing, advertising, and public relations, among others. Because the market for hedge funds is more narrowly defined, the impact is not likely to be as great. Nonetheless, by more clearly defining what constitutes “solicitation” â€“ and thereby opening the door to advertising and public relations efforts by the hedge fund community â€“ it will create new business opportunities for firms like ours, new opportunities for the funds themselves, and, almost certainly, new jobs as well.
Mike MacMillan is the founder and president of MacMillan Communications (www.macmillancom.com ), a New York-based public relations firm founded in 1996 that focuses almost exclusively on the financial services industry. He can be reached at firstname.lastname@example.org.