There is no Secret Sauce to Hedge Fund Marketing: An Allocator’s Perspective on Avoiding Common Mistakes
David Modiano has personally reviewed, met with or performed in-depth diligence on nearly 2000 hedge fund managers as a Senior Investment Professional on Investcorp’s single-manager platform over the past five years. This after spending five years in a similar capacity with Lyxor, the alternative investment branch of Société Générale.
If anyone is able to quickly evaluate a manager’s message, David is the guy. He now consults to managers at all stages on firm structuring, positioning and growth. Considering how challenging the capital-raising environment has become, he receives a lot of phone calls.
An outstanding pedigree or track record will nearly always turn a phone call into a conversation, irrespective of messaging. But not everyone has that to offer. And even those who do, still need to ensure they are getting their message across. David’s advice to clients:
1. Recognize that it has been done before
Sure…while there may not be another Jim Simons or Ray Dalio, there will be a next great manager. However, claiming that you are that person on a marketing deck will convince no one. Don’t bother trying.
2. Know your peers
Along those lines, nothing aggravates an allocator more than hearing how unique a strategy is when a manager cannot identify who his competitors are. “I appreciate that managers are intensely focused on their own businesses, but using the word ‘unique’ truly is making a big statement. Managers are better off understanding what else is out there so they can effectively distinguish themselves.”
3. No one has seven points of “Edge”
Just because your “Edge” slide is filled from wall-to-wall with text, doesn’t actually establish that you bring “Edge.” As a matter of fact, filling the page with text just dilutes an allocator’s ability to identify any real edge that you do have.
David’s advice: understand the one (or possibly two) true aspect of your strategy that can constitute “Edge” and really push on that. It may just be the approach to asset allocation or your process in cutting losses. Per his previous comment, “we don’t need an all new asset class – we just need investments that work – and do so in a way that are we led to expect them to work.”
4. Simplify the message and get to the point early
If you measure popularity by the volume of emails a person receives, then even your most run-of-the-mill, buy and hold allocator is a Hollywood star in this industry.
“Allocators can spend every waking moment looking at managers. You need to make their job easy.” He prefers managers to start at a very high level in a marketing deck or introduction and then layer in substance as they progress. In his mind, the best executive summaries focus on the following:
- What do you do?
There is little information value in learning that a manager is seeking to provide low correlation and high risk adjusted returns.
- How do you do it?
Be specific and concise: how do you capture the upside and protect capital on the downside in various market cycles?
- Why now?
What is the urgency for me, the allocator?
- Who are the people doing it?
Pedigree, team and track record.
5. Form matters
According to David, far too many managers get eliminated from consideration simply based on a perceived lack of professionalism. Materials need to be pristine. This goes beyond content – it means clean collateral, free of grammatical errors and inconsistencies.
“Just like you wouldn’t go to an interview with a wrinkled shirt, the presentation of your materials matters. If you aren’t willing to make an effort on something as simple as a marketing deck, what should I infer about the rest of your business?”
6. Construct a “Story”
Human beings are wired to respond to stories. Stories help us relate to one another and remember information. And once you’ve established your story…make it flow. Be authentic and use a straight, simple tone. David reiterated the point in our conversation that this does not need to be a complicated process. Focus on what matters, remove the industry vernacular and just get to the point.
By JD David