Debate over whether hedge funds need PR
Debate is raging as to whether hedge funds should utilise public relations firms to promote their businesses.
According to one former COO of a sub-$250 million hedge fund who did not want to be named, PRs should only be used by the larger managers. Crudely speaking, the cost of PR is around $3,000 per month, which the COO said is an unnecessary expenditure on a hedge fund, particularly for a start up in this tough capital raising environment.
“$3,000 is the equivalent of hiring a consultancy firm to help a hedge fund gain a Financial Services Authority (FSA) authorisation umbrella. Given all the cost burdens hedge funds are facing, this is quite a lot of money. My experience with PR is that it is a waste of time. We used a PR and got a few press releases written and an introduction to a journalist at Euromoney and that was it. I could have drafted the press release and googled the contact details of the journalist and rung them myself without the PR by my side,” he rued.
PR agencies predictably disagree. In 2011, hedge funds recorded their third down year since 1990 albeit their second in a space of three years, which has got some investors asking whether it is worth paying 2% and 20% for an investment vehicle that only just outperforms a bog-standard equity fund.
Furthermore, there is likely to be a surge in hedge funds as investment banks spin out their proprietary trading desks in compliance with the Volker Rule. Managers will therefore need to differentiate themselves if they are to gain traction. “Hedge funds need a competitive edge and they need to package that accordingly. This is incredibly important, especially if an individual is setting up a hedge fund. They need an investment edge to get their message out. There is a huge amount of talent in the hedge fund space and managers need to differentiate themselves,” said Anthony Payne, CEO at Peregrine Communications.
Others believe effective PR can do more than drum up investor interest but even help hedge funds shake off their negative image. “It is important that hedge funds actively participate in the public, press and political debate as to the role and value of hedge funds within the broader financial markets. Hedge funds are not the pariahs that they are so often made out to be. The seeming vilification of hedge funds by the general public and political establishment needs to be addressed and a proactive, informed intelligent media dialogue can be an important part in ensuring it is,” said Henrietta Hirst, founder of PR firm PAR Excellence.
However, the situation is complicated by US regulation, namely the arcane law Rule 502(c) of Regulation D under the Securities Act of 1933. This legislation prohibits general solicitation or advertising of private funds and securities that are not registered with the Securities and Exchange Commission (SEC). “While trade journals can drum up publicity for managers, managers have to be careful they are compliant with US advertising laws. I suspect some PRs are not even wholly aware of the strict US rules surrounding marketing,” said the former COO.
Some PRs complain Regulation D is often used as an excuse by over-cautious lawyers to dissuade clients from speaking to media. “Lawyers telling hedge funds not to speak to the press because of ‘marketing laws’ is rubbish,” slammed Simon Rostron, founder of London-based PR firm Rostron Parry.
A more in-depth analysis on hedge funds and PR will be available in COO Magazine in spring.