Black Box Marketing

Back in the fall of 2013, the SEC changed a key provision of the JOBS Act, for the first time allowing hedge funds to market directly to accredited investors. At the time, there was considerable uncertainty with regard to how the industry would respond. Observers wondered whether this new found freedom would open a floodgate of advertising and promotions or whether the response would be more muted. Now three years later, most would argue that the flood never came and that most hedge funds have been restrained to say the least in embracing the kind of broad market communications that we normally associate with mutual funds or ETFs.

Since the ruling, however, there has been a growing recognition among hedge fund managers of the market’s increasing disfavor with the black box model of hedge fund promotion. This view has been buttressed by recent studies suggesting that raw performance is not the only determinant of market success and that understanding of process and confidence in management also play an essential role in initial sales and client retention.

In this environment, the primary goal of hedge fund communications is transparency. Even the most arcane AI directed quant strategy has to explain its approach, its core value and differentiation in a crowded marketplace in a way that the listener can comprehend. Since the audience for hedge products is generally sophisticated, communications need not be simple, but they should be clear, fact-based and compelling. They should be designed to build a comfort level in the listener through understanding.

As hedge fund investment approaches become more sophisticated, complex and quantitative the distinctive challenge of market communications in this industry grows. To meet the challenge requires marketing professionals with a unique combination of left and right brain sensitivity, with the ability to bring light into the black box for those that need to trust in what it promises.