Published on:

By

Written by:  Jay Gould

When can private fund managers start posting performance numbers on their websites and sponsoring the Super Bowl?  Not yet, according to Senator Carl Levin (D-MI) in letters dated October 5,2012 and October 12, 2012, (the “Levin Letters”) rebuking the SEC for having missed the point of the legislation in the SEC rulemaking process.  As you recall, on August 29, 2012, the SEC proposed rules pursuant to Section 201 of the Jumpstart our Business Startups Act (“JOBS Act”) that, if adopted in final form, would allow private issuers, including private funds, to generally solicit and advertise as long as the investors are all “accredited investors.” 

Of most importance to hedge fund and private equity fund managers that have been anticipating a more relaxed and flexible approach of communicating with the public and soliciting new investors, the Levin Letters flatly accuse the SEC of failing to grasp the scope of the JOBS Act in applying it to private investment vehicles.  According to Levin, the SEC should “distinguish between issuers that engage in operational businesses and those that are merely investment vehicles.”  The October 12 letter further advises the SEC that  “[c]ongress did not contemplate removing the general solicitation ban – without retaining any limitations on forms of solicitation – for private investment vehicles.  Indeed, no argument was made during the debate of the bill that the objective was to ease the capital aggregation process for private investment vehicles.  The words “hedge fund,” “private fund,” or “investment vehicle” were not used either during the committee or floor debate in the House of Representatives. Nor did the Senate engage in any debate relating to removing these advertising and marketing restrictions completely from private investment vehicles.” 

According to the Levin staffer who is responsible for this area of the Senator’s legislative initiatives, we should no longer expect that the SEC will adopt the rules as proposed.  The SEC must propose new rules that more accurately reflect the intent of Congress and not simply abdicate regulatory authority over the use of general advertising and solicitation by private funds, the Investment Fund Law Blog was told by Levin’s office.    

This SEC mulligan may very well put back into play many of the criticisms of the JOBS Act that were expressed in the comment period after the JOBS Act was first signed into law.  As you may recall, on May 21, 2012, the Investment Company Institute (the “ICI”) submitted a comment letter to the SEC regarding Section 201 of the JOBS Act in which the ICI encouraged the SEC to, among other things, adopt advertising rules for private funds that are at least as restrictive as those that apply to registered mutual funds, raise the income and net worth standards in the definition of “accredited investor,” and prohibit or limit performance advertising by hedge funds until the SEC has studied the implications of such advertising for 60 years.  In a follow up letter to the SEC on August 17, 2012, the ICI, citing press reports and rumors, implored the SEC to not adopt “interim rules” pursuant to Section 201.  Rather, the ICI suggested, full notice and comment should be employed in this rulemaking process so that the SEC might fully observe its fundamental mandate to protect investors.  It should be noted that the SEC began accepting public comments on all aspects of the JOBS Act shortly after the legislation became law on April 5, 2012.  The law itself requires the SEC to adopt rules pursuant to Section 201 within 90 days of the signing of the legislation, a time frame that, quite obviously, was not met. 

The Levin Letters further admonished the SEC to establish “methods” for determining whether an investor meets the “accredited investor” standard.  The rule proposal provided only that an  issuer must take “reasonable steps” to determine accredited status, and provided significant flexibility for issuers to determine the appropriate level of due diligence in order to verify status.  The Levin Letters requested that the SEC go back to the drafting table and come up with a new proposal that requires “common sense” documentation and/or verification practices and procedures.  If, as Levin’s office suggests, the SEC does re-propose rules as a result of this criticism, it could result in issuers being required to follow definitive verification standards, such as obtaining an income statement, balance sheet, or bank or brokerage statements from investors. 

It is possible that the last chapter of the JOBS Act rules regarding general solicitation may not yet be written.  In the meantime, private fund managers should continue observing the current ban on general solicitation and advertising and put on hold those plans to post their performance returns on the back of Serena Williams’ tennis togs.

Published on:

By

Written by:  Jay Gould and Peter Chess

While you were touring the Champagne region or sipping umbrella drinks at the beach this summer, the California Department of Corporations (the “DOC”) was busy overhauling the rules applicable to investment advisers.  On August 27, 2012, the DOC adopted final rules, available here, that provide for an exemption from registration for certain private fund managers pursuant to specific conditions.  This exemption, along with the rules previously adopted by the Securities and Exchange Commission (the “SEC”), now permits certain investment advisers that provide advice only to private funds to operate without being fully registered with either the SEC or the State of California. 

Unlike the SEC rules, this exemption does not prohibit a fund manager from registering with the DOC—it simply allows the fund manager to decide whether it would like to register or rely on the exemption.  To rely upon this exemption, a California based adviser must complete and file the Form ADV (required under Rule 204-4 of the Investment Advisers Act of 1940, as amended (the “Advisers Act”)) with the DOC that is required of an adviser that files for “exempt reporting adviser” status with the SEC.  But why would any adviser that is eligible to take advantage of the exemption decide to register? 

If a fund manager intends only to seek capital from “friends and family,” subjecting itself to the full registration requirements and the more complete compliance rules that are expected soon from the DOC could represent a significant expense to the manager.  Or, if a manager is leaving another organization and must quickly get to market, the three to four month process associated with the DOC review of an investment adviser application may be viewed as too long to wait.  But if a fund manager expects to target more institutional capital, or other investors that would have a reasonable expectation that the manager is subject to some regulatory oversight, the manager may very well decide that a California investment adviser registration is not so burdensome.  After all, a manager that seeks to rely on the exemption must still file the Form ADV, prepare a private placement memorandum, and have the fund audited, among other requirements discussed below.  The analysis that each fund manager must undertake in order to make this decision is multi-faceted and is ultimately one that is unique to each adviser and its own circumstance.

To briefly summarize the results of the DOC rulemaking, an investment adviser located in California may conduct its business without being a fully registered and regulated investment adviser under the DOC regulations so long as:

  • the adviser only advises private funds that rely on either Section 3(c)(1) or Section 3(c)(5) of the Investment Company Act of 1940, as amended, (which the DOC defines as “Retail Buyer Funds”) the investors of which are all “accredited investors”;
  • the adviser is not subject to any statutory disqualifications;
  • the adviser files certain periodic reports and notices; and
  • the adviser pays the annual registration fee of $125.  

Additionally, with respect to Retail Buyer Funds:

  • the adviser may only charge performance fees to investors that meet the Advisers Act definition of a “qualified client”;
  • the Retail Buyer Fund must be audited annually by a Public Company Accounting Oversight Board (“PCAOB”) registered accounting firm and deliver a copy of the audited financial statements to each beneficial owner; and
  • the adviser must provide “material disclosures” to fund investors that adequately and accurately describe the investment program of the fund and the relationship of the adviser to the fund (e.g., the type of disclosures that competent counsel drafts on behalf of fund managers now).

When an adviser that is eligible for the California exemption reaches $100 million in assets, it would become an exempt reporting adviser with the SEC and would need to switch its status over to the SEC.  And when it reaches $150 million it must become a fully registered investment adviser with the SEC; accordingly, investment advisers can operate without being fully registered with the SEC or the State of California so long as they have less than $150 million in assets and satisfy the conditions discussed above.

The California exemption contains a “grandfathering” provision for Retail Buyer Funds formed prior to the release of the exemption, as the additional requirements listed above are deemed satisfied if the Retail Buyer Fund: (i) distributes annual audited financial statements; (ii) pre-existing investors receive the “material disclosures” discussed above; (iii) from August 27, 2012 on, the Fund only sells interests to “accredited investors”; and (iv) the adviser receives performance-based compensation only from pre-existing investors or “qualified clients.”

Published on:

By

Written by:  Jay Gould and Peter Chess

Heath Abshure, President of the North American Securities Administrators Association (NASAA) and Arkansas State Securities Commissioner, sharply criticized the Securities and Exchange Commission’s (the SEC’s) new rulemaking that will lift restrictions on general solicitation and general advertising for hedge funds and other private investment vehicles in a press-teleconference on October 9, 2012.  At the heart of the criticism is the contention that hedge funds and private equity funds could be among the amended rule’s biggest users and beneficiaries. “The SEC’s proposed rule would open the door for private equity and hedge funds, typically only offered to the most sophisticated investors, to advertise to the general public without putting in place basic disclosure requirements that would allow investors to make informed decisions about the products being offered. This is the wrong way to go,” remarked Heath Slavkin Corzo, senior legal and policy advisor of the AFL-CIO’s Office of Investment during the teleconference.

Under the Jumpstart Our Business Startups Act (the JOBS Act), as discussed here and here, the SEC was directed to amend Rule 506 of Regulation D under the Securities Act of 1933, as amended, to permit general solicitation and general advertising in unregistered offerings made under Rule 506, provided that all purchasers of the securities are accredited investors.  In reaction to the SEC’s answer to the directives of the JOBS Act, Abshure called for the SEC to withdraw its proposal and draft a new rule that promotes capital formation without sacrificing investor protection.

“People don’t seem to think so, but this is a drastic change to the face of securities regulation,” Abshure said. “Rule 506 offerings already are the most frequent financial product at the heart of state enforcement investigations and actions. Lifting the advertising ban on these highly risky, illiquid offerings, without requiring appropriate safeguards, will create chaos in the market and expose investors to an even greater risk of fraud and abuse. Without adequate investor protections to safeguard the integrity of the private placement marketplace, investors should and will flee from the market, leaving small businesses without an important source of capital.”

“The Commission itself has acknowledged that lifting the ban on general solicitation in private offerings will increase the risk of fraud, potentially harming investors and issuers alike,” added Barbara Roper, Director of Investor Protection for the Consumer Federation of America and the chair of the Investor Issues task force of Americans for Financial Reform during the teleconference. “While the Commission is required by the JOBS Act to lift the solicitation ban, it also has an obligation to adopt rules that protect investors and promote market integrity and the authority to do so.  A number of reasonable, concrete proposals have been suggested that, if adopted, would significantly improve safeguards for investors in private offerings.  Its rule proposal completely ignores those suggestions.  It cannot in good conscience continue to do so.”

The full press release about the teleconference is available here. 

Published on:

By

Written by:  Jay Gould and Peter Chess

On October 9, 2012, the Securities and Exchange Commission (SEC) announced the launch of an initiative to conduct focused, risk-based examinations of investment advisers to private funds that recently registered with the SEC.  These “Presence Exams” are part of a two year initiative with three primary phases: engagement, examination and reporting.  During the examination phase, staff from the National Exam Program (NEP) will review one or more of five areas identified by the SEC as “high-risk” areas for the business and operations of advisers:

  • Marketing.  NEP staff will conduct evaluations of marketing materials to ascertain, for example, whether the adviser has made false or misleading statements about its business or performance record.
  • Portfolio Management.  NEP staff will review and evaluate an adviser’s portfolio decision-making practices.
  • Conflicts of Interest.  NEP staff will review the procedures and controls that advisers use to identify, mitigate and manage conflicts of interest within their firm.
  • Safety of Client Assets.  NEP staff will review advisers deemed to have “custody” of client assets for compliance with provisions of the Investment Advisers Act of 1940, as amended (the Advisers Act), and related rules designed to prevent theft or loss of client assets.
  • Valuation.  NEP staff will review advisers’ valuation policies and procedures.

Investment advisers should note that access to any advisory books and records will also need to be provided upon request during a Presence Exam.  Prior to the examination phase, NEP staff will engage in a nationwide outreach to inform newly registered investment advisers about their obligations under the Advisers Act and related rules during the engagement phase.  At the conclusion of the examination phase, the NEP will report its observations to the SEC and the public.

The NEP is administered by the Office of Compliance Inspections and Examinations within the SEC.  The letter outlining the NEP’s initiative, available here, was distributed to certain executives and principals of newly registered investment advisers and posted on the SEC’s website.  NEP staff will contact advisers separately if their firm is selected for an examination, and receipt of the letter announcing the launch of the initiative does not ensure that a Presence Exam will necessarily follow.

Published on:

By

Written by: Jay Gould and Peter Chess

Effective December 3, 2012, hedge funds and other private funds that rely on Section 3(c)(1) of the Investment Company Act (“3(c)(1) Funds”) and which sell their interests through third party marketers, must ensure that their private placement memoranda (“PPM”) are filed with FINRA, the Financial Industry Regulatory Authority.  The Securities and Exchange Commission recently approved new FINRA Rule 5123, Private Placements of Securities, which is part of an ongoing approach by FINRA to enhance oversight and investor protection in private placements.  Under Rule 5123, each firm that sells a security in a private placement, subject to certain exemptions, must file a copy of the offering document with FINRA within 15 calendar days of the date of the first sale.  If a firm sells a private placement without using any offering documents, then the firm must indicate that it did not use an offering document.  The rule also requires firms to file any materially amended versions of the documents originally filed.  Rule 5123 exempts some private placements sold solely to qualified purchasers, institutional purchasers and other sophisticated investors.

For hedge funds and other  private funds that have hired a third party marketer, the fund manager must make sure that the agreement with the marketer, which is required to be a registered broker dealer, obligates the marketer to file the PPM with FINRA and amend the filing if the PPM is materially revised.  The marketing agreement, or “placement agency agreement” as it is sometimes called, should indemnify the fund manager for the failure of the marketer to make these filings.      

Rule 5123 will become effective December 3, 2012, and the full text of the FINRA regulatory notice regarding Rule 5123 is available here.

Published on:

By

The 3rd Annual Excellence In Investing: San Francisco, in partnership with The Sohn Conference Foundation, will be held on October 24, 2012 at the Merchants Exchange, Julia Morgan Ballroom.   Excellence In Investing: San Francisco is the premiere Bay Area investor conference benefiting local and national education and other children’s causes.  

For more information and to register, please visit www.excellencesf.org or click here.

Published on:

By

On August 30, 2012, Ildi Duckor and Michael Wu, members of Pillsbury’s Investment Funds and Investment Management practice, met with executives and staff of the California Department of Corporations at the Department’s invitation.  The purpose of the meeting was to provide the Department’s investment adviser and broker dealer divisions (live in San Francisco and via teleconference in the Sacramento and Los Angeles offices) with a broad overview of the hedge fund industry.  “We hope that a better understanding of the industry will help balance hedge fund managers’ business needs with the regulators’ need for investor and market protection, and will streamline both the adviser registration and the examination process” said Ildi Duckor.  The Investment Funds and Investment Management team will continue to cooperate with the Department in an effort to provide industry insight with respect to future California regulation of hedge funds and their advisers.

Published on:

By

This guest post from the Margolis Advisory Group, co-authored by River Communications, is reprinted with permission.  The Executive Summary appears below and the full text is available here.

The JOBS Act is bringing change to the hedge fund industry, and, most likely, this change will accelerate the trend towards institutionalization. The lifting of the “advertising ban” opens the playbook, allowing hedge funds to engage in a wide range of strategic communications and marketing activities. For some, this will offer a new opportunity to compete for assets with traditional managers adept at managing their brands and marketplace perceptions. Others will resist, possibly to their detriment, as funds will no longer have the luxury of hiding “under the radar.”

Hedge funds who embrace the new, less restrictive environment will need to build mature, comprehensive strategic communications programs. The best practices include:

  • Revisiting the brand and value proposition on a regular basis to ensure it accurately and effectively reflects a “firm’s DNA.”
  • Implementing a consistent process that provides for the regular refreshing of value-added content to communications vehicles.
  • Creating content that provides true thought leadership, enhanced with proprietary surveys, and investment & industry commentary.
  • Considering a broad range of distribution and engagement vehicles to build awareness of the firm, including: web and mobile devices, public relations, marketing communications, targeted advertising and investor communications.

Hedge funds have thrived by embracing and even becoming catalysts for change. In this hyper-competitive industry, it is commonplace to expend disproportionate resources to capture even a minimal investment performance advantage. Because of this, it is surprising that there has not been more enthusiastic support in the trades for what is potentially the next major shift for the industry: the Jumpstart Our Business Startups Act or JOBS Act.

Passed with little fanfare, the JOBS Act lifts the ban on advertising for hedge funds (among other provisions) and has the potential to transform how managers market their firms, build their brands and communicate with their investors. Yet, much of the discussion in the trades and on the hedge fund industry speaking circuit has downplayed the potential impact of this provision as being only meaningful to the smaller funds. Large funds—as the typical explanation goes—believe they do not need to proactively market, as they commonly market off their mystique of exclusivity and will prefer to remain “under the radar” to protect their proprietary investment strategies. Furthermore, the larger funds are already staffed for one-on-one sales, and many in the hedge fund industry are under the false impression that sales are only based on individual contacts or “having the Rolodex.”

The fact is, change is coming to the hedge fund industry, and many managers will continue to adapt to the ongoing evolution as they always have. Most likely, this change will accelerate the trend towards resembling traditional managers—for hedge funds can now adopt advertising and marketing techniques, as well.

Consider the trends we have observed in the hedge fund and institutional asset management space, especially since the market declines of ’07-’08. New regulations have increased the demand for information on leverage and counterparty risk; the migration from single to multi-prime brokers has occurred, and institutional investors are demanding more transparency in investment operations, risk and administration. Perhaps, most significantly—the largest institutional investors have been allocating funds almost exclusively to the largest hedge funds.

According to “The Evolution of the Industry: 2012,” an annual KPMG/AIMA hedge fund survey, institutional investors now represent a clear majority of all assets under management by the global hedge fund industry, with 57 percent of the industry’s AUM residing in this category. And, the proportion of hedge fund industry assets originating from institutional investors has grown significantly since the financial crisis.

As a result, we are seeing a continuation of the institutionalization of hedge funds. The KPMG study confirmed this with survey data indicating that investors demand hedge funds look and act more like traditional institutional managers from an operational standpoint. In addition, 82 percent of respondents reported an increase in demand for transparency from investors, while 88 percent said investors are demanding greater due diligence.

Our own experience consulting with hedge funds and traditional managers has confirmed other indications of this trend, as well as with all investors—large and small—demanding greater operational efficiency; cost reduction; and models that enhance overall risk management, such as the move from single to multi-prime relationships; all delivered in an open and transparent way.

For hedge fund managers to attract large pools of money, they will increasingly need to be more institutional and transparent with all investors. This is a significant cultural shift for these firms. Not only do many hedge funds lack a strategic communications infrastructure, but the concept of such openness still runs contrary to the DNA of most firms.

The question then becomes: how should hedge funds that embrace a more open and inclusive communications strategy implement programs that will help them achieve this goal? The answer is they will need to develop an approach to communications that is similar to traditional institutional asset managers.

Published on:

By

Written by: Jay Gould

On August 30, 2012, the Securities and Exchange Commission (the “SEC”) released the Dodd Frank Act’s mandated study (the “Study”) on the financial literacy of retail investors which concludes, as you might have predicted, that retail investors are essentially clueless about investing and financial matters generally.  That slapping sound you heard was the high-fiving by stockbrokers everywhere across America.  Among the selected findings were that retail investors lack “basic financial literacy” and that such investors have a weak grasp of elementary financial concepts and lack critical knowledge of ways to avoid investment fraud.  It should come as no surprise that certain subgroups, such as women, African-Americans, Hispanics, the elderly, and the poorly educated have even less basic financial knowledge than the general population. 

Without water boarding you with the details of this 182 page report, the SEC obtained the information necessary to reach these conclusions by conducting focus groups and quizzing investors through an online survey.  These methods revealed that investors can’t identify basic financial products, can’t calculate fees, do not understand conflicts of interest, and, if that were not enough, can’t read an account statement.  The Study concludes with a strategy and set of goals for increasing financial literacy among this retail class.  The goals should be to improve investors’ understanding of risk, the fees and cost associated with investing, proactive steps for avoiding fraud and increasing general financial knowledge.  These laudable goals are to be achieved, quite magically, by devising education programs that target specific groups that are deemed vulnerable, such as young investors, lump sum payout recipients, investment trustees, members of the military (if you ever want to know how much we value our military personnel, look into periodic payment plans), underserved populations, and older investors. 

Certain members of the financial industry have agreed to work together on an “ask and check” campaign that would encourage individuals to check the background of investment professionals before using them, and to encourage investors to verify that a potential investment is legitimate before investing.  Financial regulators have agreed that more information should be added to the investor protection section of the SEC’s website and that a general campaign should be embarked upon that will help individuals understand the fees and costs associated with financial products.  

But why are the findings and conclusions of the Study important now?  Well, a couple of reasons come to mind, one of an immediate concern, the other longer term in nature.  First, you may have read that the SEC recently released for public comment the rules that will lift the ban on “general solicitation” for otherwise private offerings.  These rules, if adopted in their proposed form, would permit private issuers, including private funds, to solicit investors generally through all forms of public media, including newspapers, the internet and mass mailings.  Issuers will be required to take reasonable steps to determine that all investors meet sophistication and accreditation standards before accepting an investment, but make no mistake, these rules are the most significant changes to the securities offering process since the Securities Act of 1933 was signed into law.  Many state securities regulators are predicting an avalanche of new frauds aimed squarely at those categories of vulnerable investors that the Study identified. 

In a world where modern means of communication have forever blurred the lines between information that is privately distributed and that which is in the public domain, it makes little sense to cling to the old concepts of private offerings to investors with whom one has “pre-existing, substantial relationships,” and we have actively supported the lifting of the ban.  However, with increased rights come increased responsibilities.  It will be the responsibility of all of those in the private funds business to remain vigilant against potential frauds and scams, to adopt “best practices” on behalf of ourselves and our clients, and to work more closely with regulators in order to protect not just investors, but the viability of our industry itself.  We hope that fund managers and those who serve them will take these obligations seriously with a longer term view. 

As for the longer term, this November the U.S. will elect or re-elect a President.  One of the most significant issues in this campaign will be around entitlement reform.  That is, what to do about the long term health of Medicare, Medicaid and, for purposes of this discussion, Social Security.  In his second term, Bush II attempted to privatize Social Security to some degree.  This proposal generally envisioned allocating a third or a half of a retiree’s account into a “personal plan” over which the retiree would have investment discretion.  Rather than a guaranteed payout from Social Security after choosing a retirement age, each retiree, most of which have the level of sophistication discussed in the Study, would be responsible for making his or her own investment decisions.  It is fairly easy to figure out who might be in favor of putting millions of unsophisticated, financially illiterate people in charge of the assets that would otherwise be paid out by Social Security on a monthly basis.  Whether and how the results of the Study are used in the debate on Social Security reform should be, at a minimum, very interesting to watch.

  

Published on:

By


By Bruce Frumerman
 

 
As published August 6 at FINalternatives.

 

August 6, 2012

 

Hedge Fund Marketing Implications From New Survey

Findings On Investment Beliefs

by Bruce Frumerman, Frumerman & Nemeth Inc.

The recently published Pensions & Investments/Oxford University survey on long-term investment beliefs has implications for how hedge fund firms market their strategies and get buy-in from institutional investors.

Relevant findings for hedge fund firm owners

In offering conclusions from their survey results Gordon L. Clark, professor at Oxford University’s Centre for the Environment, who led the survey, offered the key observation that managers will increasingly be differentiated by “their strong belief systems and a rigorous investment process that matches those beliefs.”  P&I reported that he went on to comment that “It’s terribly important for managers” to base investment decisions on a clear set of investment beliefs. “The whole logic of their business is premised on being able to articulate beliefs, testing beliefs and being able to revise beliefs in a very uncertain world.”

P&I also reported the comments of Rob Bauer, professor of finance and chair of the institutional investments division at Maastricht University, that more investment managers “now focus on the structure of their investment beliefs, how the beliefs translate into the design of the investment framework and how that framework is executed. The more sophisticated investment managers are really trying to have a coherent structure.”

What it means for hedge fund marketing

Marketing hedge funds has become more competitive.

Successful capital raising has always required having more than just performance that is within the ballpark of acceptance. Having institutional caliber operations and administration went from being a marketing differentiator to simply an expected cost of doing business. Along the way, from pre-crash to post-crash, the term transparency, and the call for it, changed in meaning. What began as calls for data — reveal the portfolio holdings and provide third-party reporting — morphed into a call for providing more explanation about the investment process and decision-making behind a firm’s strategy.

Institutional investors and their investment consultants have become more demanding for greater information detail about how hedge fund managers think and how they construct and manage their portfolios.

Is your firm communicating an institutional caliber explanation about its investment beliefs and the process behind its strategy? A few bullet points in a flip chart are not sufficient for accomplishing this. You cannot just claim you have a rigorous investment process and leave it at that. You have to prove it with a detailed explanation of this important subjective information that your hedge fund has to persuade people to understand and buy into: how it invests.

Reexamine your own communications. Are you truly differentiating your firm from the competition or are your marketing collateral, in-person presentations and responses to essay questions in RFPs and DDQs actually having you come across as a me-too copycat strategy-wise, offering no perceivable added value?

Have you given prospective investors easy access to a full, written explanation about your firm’s investment beliefs and investment process? Your hedge fund has a communications marketing risk management challenge. One of the important selling missions you have is to reduce the odds that a prospect will mess up retelling the subjective-based part of your firm’s story to others on the investment committee. Supplying them with the written long version story of investment beliefs and investment process will increase your control in how your prospect remembers and retells your story to other decision makers.

A flip chart pitchbook is not the right tool for this communications job. An additional marketing document that delivers this vital story in sentence and paragraph form about how your firm thinks is required. Such content is more suited to brochure format marketing collateral than to bullet point flip charts. If such a marketing tool is not already in your selling arsenal for making selecting your offering a more defensible decision in the minds of your prospects, creating this type of document should be at the top of your communications marketing To Do list.

The job of crafting the story of a hedge fund’s investment belief system and its investment process isn’t an assignment a portfolio manager can pass off to others to create with little or no participation from him. Too often, important parts of a hedge fund’s investment process story have never been fully communicated to people outside the firm. Also, many hedge fund firms find themselves unable to tell their investment beliefs and process story the same way twice. So, the portfolio manager’s participation with his communications marketing experts in locking down his firm’s storyline is vital.

Differentiate your hedge fund based on your investment beliefs and a demonstrable, rigorous investment process that matches those beliefs and you will improve your firm’s ability to out-market competitors and convert prospects to clients.

#          #          #

Bruce Frumerman is CEO of Frumerman & Nemeth Inc., a communications and sales marketing consultancy that helps financial services firms create brand identities for their organizations and develop and implement effective new marketing strategies and programs. His firm’s work has helped money management clients attract over $7 billion in new assets, yet Frumerman & Nemeth is not a Third Party Marketing firm. Bruce has over 30 years of experience in helping money managers to develop buyer-focused positioning strategies to differentiate them from their competitors; create more cogent and compelling sales presentations and marketing materials to better tell their story; and use media relations marketing and industry conference speaking opportunities to help establish a branded identity for their organization by generating third-party endorsement for the expertise of their people, the value of their services and the quality of their products. He has authored many articles on the topic of marketing money management services and is a frequent speaker on the subject at industry conferences. He can be reached at info@frumerman.com, or by visiting www.frumerman.com.

© Frumerman & Nemeth Inc. 2012