The Real Reason Why Alternative Investment Funds Don’t Advertise

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“If the alternatives industry were to build freeway signs, they would put a paragraph on them rather than one word and an arrow.”

– Kyle Dunn, Meyler CEO

 

Kyle has been making this argument since founding the firm five years ago. The obvious point: the industry is way too verbose and it lacks imagination.

 

The alternative investment space has become incredibly mature and competitive in a relatively short period of time. While investment strategies have evolved, the marketing of these strategies has not. What was appropriate 10,000 funds ago is no longer appropriate today.

 

The industry uses several tired arguments to rationalize its creative deficiencies. Regulations around general solicitation for private placements is obviously at the top of that list. No one is arguing that converting to a 506c fund and then soliciting the snot out of the marketplace won’t require effort and resources. It’s just not nearly as onerous as it is made out to be. Then there is the concern around managing lots of less sophisticated small accredited investors as opposed to a few very large institutional investors. But…you know what they say about beggars and choosers.

 

The most misguided claim, however, is…that institutional investors are much too sophisticated to be swayed by marketing. The thing is, marketing is simply about making things interesting and relevant. “Institutional” doesn’t actually have to be synonymous with “mundane.”

 

Irrespective of our opinion, the reason more funds don’t advertise is likely due to a completely different reason…It requires courage. Courage to be first and courage to invest in creativity. Unfortunately, the perceived risk of potential failure (embarrassment) has far overshadowed the huge potential reward of success.

 

It got us to wondering. What if there weren’t these (perceived) impediments to advertising in our industry…what if it was just a thing you did? Because it some point it will be. Would PMs continue to take the DIY approach to marketing as they have traditionally done? If so, wouldn’t you be curious to know how it would look? We are – so here’s our best guess:

 

That freeway sign Kyle referenced:

Would probably read something like this:

And… THIS COMMERCIAL:

…would probably become just a long clip of a car driving around a track with a senior manager providing the following voiceover:

 

We are Mercedes Benz, the premier luxury automobile manufacturer in the world. Headquartered in Stuttgart, Germany and a division of Daimler AG, we employ 284,000 people globally. We seek to offer a superior driving performance and safety of passengers enabling drivers to benefit from a unique experience. Not only can some of our cars go from zero to 60mph in under four seconds, others can go from 60mph to zero in less than one hundred feet.

Please note: this advertisement shall not constitute an offer to sell or the solicitation of an offer to buy our vehicles.

 

Finally….can you even begin to imagine how the internal conversation at a fund would go around a “real” corporate sponsorship. Take something big – but very mainstream…like stadium naming rights. I envision heads exploding at the mere thought.

 

But it is worth noting that even companies in the most highly regulated industries have come around on this – Airlines, Alcoholic Beverages, Cable, Casinos, Energy, Financial Services (the other financial services), Healthcare, Insurance and Telephony companies all own naming rights. If you’re curious, check out the full list here.

 

Corporates tripping over themselves to spend millions of dollars for something with very little direct ROI only started to gain traction over the last 20 years (and after the massive Enron embarrassment with the Houston Astros stadium). Companies do it now for one simple reason – it works. But I am guessing they started doing it because at some point this form of advertising hit a tipping point and companies began to feel it was too risky not to do it.

 

Not suggesting that fund managers are going to run out to amend their Form D’s and then jump in the stadium naming fray…yet. After all, we are in a different industry with a much narrower audience. But once a courageous, innovative few start to move, the ‘fear of loss’ will flip on its head and others will eventually feel compelled to pile-on.

 

By JD David

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