How Hedge Funds Can Effectively Advertise

Hedge funds, private equity companies and other firms can now advertise. While these firms will be allowed to advertise on television and through the Internet, they can still only provide their investment products to “accredited investors.” That means you have to have a net worth of US$1 million not including your primary residence or an annual individual income of US$200,000.

“The proposed rules, which are not yet final, are a double edged sword that increases flexibility for issuers to solicit purchasers through general solicitation, while imposing a more significant due diligence burden on issuers to verify that purchasers are accredited investors,” explains David S. Guin, Chairman of the Corporate and Securities Department at Withers Bergman LLP. While advertising might have drawbacks, there’s still strong interest among hedge funds.

According to Michael Patanella, partner, Grant Thornton, “Advertising is now another tool for hedge funds to get their message out. What’s very important is that the hedge funds who seek to benefit from advertising have very clear and powerful messages that are also well targeted.” Thus, for hedge funds to successfully use advertising requires well-conceptualized answers to the following questions.

• What is the role of advertising in the overall capital raising efforts? It’s important that advertising be well integrated and supportive of all efforts to bring in new monies.
• What is the objective of the advertising? From  building a selectively recognizable brand to being a lead generator, advertising can serve a function.
• Who should the advertising be targeting? Hedge fund mangers need to decide if its better to target accredited investors directly or for them to target intermediaries such as financial advisors, wealth managers and multi-family offices. Of course, different advertisements can be used to target both cohorts.
• What mediums will garner the most attention? There’s print, commercials on television and the Internet, mobile ads and so forth. What will likely work best is a function of the overall capital raising campaign strategy.
• What is the narrative? This is the storyline validating the investment acumen of the hedge fund managers. For example, by artfully positioning themselves as thought leaders they can readily highlight their investing brilliance.

In many respects, raising capital from the wealthy is harder than ever before. Advertising is another tool that hedge funds and other alternative investment managers can use to both attract new monies from new wealthy investors as well as acquire additional funds from existing affluent investors. There are other benefits as well such as communicating and potentially validating the expertise of the hedge fund managers.