Are Hedge Funds Really As Sophisticated As They Claim When It Comes To Applying Data Science?

There is no question that the hedge fund industry has gone all in on ‘big data.’ The use of quantitative information, AI, and machine learning to uncover patterns in some form or another is now practically expected of fund managers – even those running completely discretionary strategies.

But while alternative funds have become enormously sophisticated in how they utilize data to optimize their investment strategies, they are surprisingly naive when it comes to utilizing data for marketing purposes. We know because it’s a part of our regular dialogue with managers and the percentage of “deer-in-the-headlights” responses we get on the subject would probably astound you.

The primary reasons we hear for the resistance profile prospective interest via data ranges from concerns over technology limitations to a perceived lack of concrete ROI.

However, neither argument stands up to any scrutiny at this point.

No longer an IT problem

Software to capture and analyze information is now just another off-the-shelf product used by practically every other industry. This is no longer an issue of can vs. cannot. The ‘marketing data’ available to users now is astonishing. Even the ubiquitous pitchbook – a relatively antiquated tool at this point – can now be used to generate precise analytics to measure specific investor interactions. This includes specific page views, time spent per page, and even aggregated information based on all client activity. Despite this, few clients chose to employ the software.

The objective of any marketing strategy is to get into better quality conversations and expedite the sales process. Over time data analytics will do much more to affect the outcome than anything else with respect to identifying fit and getting into warm conversations.

“How much more money have you raised by putting up a new website?”

After we created the first hedge fund advertisement (at least that it was how the media termed it), the question people immediately jumped to was, “how much money did the client raise as a result of the video?”

The question of ROI on marketing is admittedly a tough one. But part of the issue is that people are simply asking the wrong question – or more accurately, have some unrealistic expectations of what marketing is intended to accomplish.

The pushback we hear almost always comes back to the same misunderstanding around how to measure the “R” and how to think about the “I” in ROI. Many managers we speak with seem to be under the delusion that if you cannot draw a straight line from marketing spending to AUM growth, then you are wasting your money. But for some reason, they don’t draw a similar conclusion with respect to the purchase of new technology, the amount they pay to lease office space, or even the decision to hire a recognized lawyer, administrator, or PB. All contribute to the positioning of the firm’s brand – but taken on their own, none will be enough to influence the investment decision.

As a matter of fact, the same goes for measuring the ROI of conference attendance, PR, or direct third-party marketing. The objective of any of this is to engage in better quality conversations and expedite the sales process. Over time, data analytics will do much more to affect the outcome than anything else with respect to identifying fit and getting into warm conversations.

It’s a self-discovery world now

People increasingly use the internet for initial diligence purposes – they want to “self-discover.” The ability for a manager to profile activity and build “Lead Scores” based on actual behavior is now much more valuable than it ever was. In the past, interested prospective investors would just pick-up the phone and call a manager directly – clearly that is not happening nearly to the same extent any more.

Not only can we now profile interest via email, websites, and PDFs, we even have data that provides insights into video activity. This information goes beyond who has watched videos and how many they have watched. We now know the specific time length a video was watched, which segments have been re-played, and how often the video has been forwarded to colleagues.

Here’s an opportunity cost question for you…

How is your decision to spend an entire day flying across the country for a one-hour meeting with a prospect affected if you know with absolute certainty that she has not even opened your deck or even invested 10 seconds in watching your 2 minute video?