It appears as though the sky is falling.

Recent news reports on the hedge fund industry have been all but negative. From the “hedge funds are scams” hype of the previous decades to pessimistic forecasts of the hedge fund industry, the media is not being kind to hedge funds these days.

The S&P is up 7% but the average hedge fund might not achieve a 11% return? Perhaps it’s time to close up shop and just quietly invest in government bonds. As if any successful hedge fund CEO or manager would be so easily swayed by negative opinions from others…

This post is in response to the recent negative images of hedge funds in the media. But its main focus is on helping hedge funds figure out how to deal with this negativity. For now, ignore the fear mongering and instead focus on how you can weather this storm – or even better: ride this wave to new heights.

1. Maintain Constant Communication with Your Investors

If you’ve encountered a wealth of anti-hedge fund news in the media, your investors have likely done the same. But while you’re holding the reigns to the business, investors can only hope that things will go well. Ultimately, your goal is to ensure no one suddenly backs out of the fund. But to attain that goal, your best bet is simply to foster your relationship with your investors, comforting them through these troubled times.

Maintain communication with your customers, emphasizing the positive factors of the fund and the current market. Build your relationship through constant (though not annoyingly constant) communication. Easy means to do so follow:

• Monthly newsletters and e-newsletters
• Weekly email updates
• Special-occasion postcards (e.g., birthdays, national holidays, your hedge fund’s anniversary)
• Daily or weekly blog posts
• Investor surveys

By maintaining constant communication, you alleviate that sinking feeling in the pit of your investors’ stomach when they read a sky-is-falling report about hedge funds and haven’t heard from you for weeks or months.

2. Create a “Negative Market” Strategy

When the media describes the hedge fund industry as in shambles, your answer should be “this news doesn’t apply to us.” This is a perfect time to emphasize or re-emphasize how your hedge fund differs from others in the market. While the average hedge fund might be in a slump, yours isn’t. Because, after all, your hedge fund isn’t just an average hedge fund.

Doing this is a three-step process, repeated as many times as you need (or can):

1. Locate one of the factors causing the bad hedge fund news.
2. Distance yourself from the problem.
3. Frame it as foresight.
4. Repeat.

For example:

1. New regulations make it harder for hedge funds to capitalize on arbitrage.
2. In XYZ Hedge Fund, only 10% of the investment strategy utilizes arbitrage strategies. This 20% less than the industry standard of 30%.
3. The managers at XYZ Hedge Fund have always been focused on a strategy capitalizing on global economic trends; we realize that arbitrage is a possible trading strategy but do not rely on it to grow your investment.
4. Switch to the next issue: economic downturn, fraud in the hedge fund industry, etc.

Not only can you use this technique to restore investor confidence, but you can use it as a general marketing strategy for finding new investors.

3. Become the Conversation’s Thought Leader

Be one of the first to speak on the issue. In this regard, you’ll be different. Most hedge funds will be tempted to remain silent, hoping the negative media attitudes dissipate over time. But you, already having mastered techniques 1 and 2, will be able to combine these previous two techniques into a nuclear weapon: Controlling the conversation.

Contact the press. Let them know you have your own take on the situation and are willing to provide them with a story or interview. Bring in the tools you used in technique 2, emphasizing how your hedge fund is specially prepared to deal with the downturn. Follow that explanation with a specific explanation as to what went wrong. Finally, give your thoughts on the future.

In short, the steps are:

1. Contact the press for (free) exposure and become engaged in the discussion (don’t forget to use social media as well).
2. Explain your hedge fund’s current situation in respect to the market (frame yourself in a positive light).
3. Describe the factors that caused the situation and how other hedge funds can protect themselves next time.
4. Give your forecast on the market.

By actively entering the conversation through respected media access, you gain an authority position in the conversation. Use this position well to frame your hedge fund in a positive light, simultaneously educating readers so that your article doesn’t appear as mere damage control.

Conclusion

When trouble comes, the natural reaction is to try to resist or fight. An oncoming onslaught of negative opinion will often push a hedge fund into damage-control mode. So let your competitors engage in damage control while you enjoy (and profit from) the ride.