Successful Hedge Funds: It's All About Mindset

Running marketing campaigns for companies big and small, successful and failing has given me what I would say is an accurate outlook on exactly what separates a successful business from a soon-to-be bankrupt one. I’ve worked with companies that have been around for over a century. I’ve worked with startups that were making thousands of dollars per month before their first birthdays. Because I always need a plethora of information on the before I begin a campaign, my research helps shed light on how these companies think. What I found is this: No matter the age of a successful company, there are always five commonalities present in the mindsets of the founders. These mindsets apply to hedge funds.

Here’s the first thing to note: No company or hedge fund is successful purely because of capital. Startups with practically no initial investment can become multi-millionaire behemoths. Likewise, all the money in the world can’t save a company with the wrong mindsets. I can vouch for this on my experience: There’s always a company who wants to do things “their way” (e.g., conforming to the industry standards, censoring effective marketing), opting for wasting their money and time on things that, like luck, don’t matter (e.g., company-centric messages describing their “vision” and “creative” branding).

Too many hedge funds are stuck in a similar mindset, one that says, “this is how marketing should be, and so ours shall be.” They resist evolution. They resist experimentation. They take the easy route of copying the marketing of other industries while forgetting that the hedge fund industry is fundamentally different from all others. A successful hedge fund marketing campaign, in contrast, takes the longer, harder path: learning new marketing strategies and implementing them. Successful hedge funds are able to leverage new ideas, new technologies, and the fact that they are in a unique industry.

My hope is that you will first reflect on what type of hedge fund you are. Are you blindly following the marketing practices and tactics of the difficult-to-enter financial industry? Or are you a hedge fund willing to try something new, something that will make your fund stand out in an industry getting more crowded every year?

You can hire me for consulting or even buy an entire marketing system from me, but unless you’re the type of hedge fund to act on methods that seem counter-intuitive and “newfangled” (i.e., different from the industry standards), you’ll never see results.

As you read the rest of this article, do so with an open mind. If your mindset differs in any of these five categories, you will end up acting in ways that prevent your hedge fund from growing. This I guarantee.

Below are the five mindsets of successful hedge funds.

Success Mindset 1: Discrimination Is Okay

You are not marketing your hedge fund to every investor out there. You have an idea investor in mind. You are marketing to that investor only.

• What kind of investor gives you the most benefit?
• Who keeps his money in the fund the longest?
• What kind of investor contributes the most money overall?

A successful hedge fund has the answers to the above questions. A successful hedge fund has an avatar of the ideal investor and can therefore position the hedge fund in a way that makes the fund seem perfect for this investor.

Part of your marketing should be “qualification material,” messages that push away other types of investors so as to allow your marketing team to focus on the ideal investor. As a side benefit, you make your hedge fund seem more exclusive, which is naturally attractive (think exclusive clubs, first class seating, and invitation-only programs).

Success Mindset 2: Should Your Hedge Fund Fail, You Are the Only One to Blame

When I was in graduate school studying psychology, I learned of a human bias present in all of us: We tend to take credit for our successes yet blame others for our failures. But at the same time, we tend to attribute the successes of others to circumstantial factors, while we attribute the failures of others to problems of character. This is a bias that exists in all of us. But it is particularly harmful for businesses that rely on effective marketing for success. That is, businesses such as hedge funds.

Here’s a few things I’ve heard from the mouths of those in the hedge fund industry:

1. “Regulations make it hard for us to market.”
2. “The public’s image of hedge funds is not good.”
3. “Most investors aren’t well educated on hedge funds.”

The above statements all attribute blame to others. They put limitations in places where there are no true limitations. By making and believing such statement, you put yourself in a marketing prison.

Even multimillionaires find it easy to whine and complain instead of working on improving their businesses. I know. I’ve met them. I’ve listed to them whine. These days, I don’t let them – I cut them off, but there was a time in my career when I erroneously thought that listening to this type of complaint from a prospect would earn my favor. Take this to heart when you’re speaking to investors of your own!

Here’s a shift in mindset: Whatever you’re complaining about now, some other hedge fund is proactively dealing with. Throughout the world, thousands of hedge funds are successfully marketing themselves and gaining millions upon millions of dollars in investments. There is no reason you can’t be doing the same.

Let’s return to those three complaints I mentioned above with a proactive mindset:

1. Every other hedge fund is subject to the same regulations you are. You’re on a level playing field.
2. The public’s negative image of hedge funds gives you the opportunity to position yourself as a hedge fund “different from the herd.” It makes it easier for you to stand out.
3. It’s your job to educate investors on the advantage of hedge funds. In the process, you can grab their interest and pull them in for a pitch.

Success Mindset 3: A Hedge Fund Is NOT a Commodity

To an investor, what’s the difference between two hedge funds? If you think it’s performance, I assure you, you have a failure mindset.

If you think the only thing that separates two hedge funds is how they perform relative to the industry average, then I hope you’re driving a Honda Civic. After all, the Honda Civic performs just as well as any other car out there for normal road conditions. So why bother spending an extra wad of cash on a BMW or Lamborghini? I think you get my point: the function of the product is not the selling point.

If you see your hedge fund as just another choice in the industry, you’re doomed to mediocrity.

Yet most hedge funds market themselves as another choice in the industry, using their performance as the central marketing message.

Just like the car industry’s top dogs, a successful hedge fund can cast off the “commodity” image in several ways:

1. Be highly niched. That is, be a fund that your investors can easily describe to their friends and family. Most funds go with the “we do a little bit of everything.” Sacrifice some of that diversity for focus. What you think might hurt your portfolio will actually pay off in investors.
2. Educate, don’t sell. Be a source of information for your investors. Instead of being a financial instrument, be a financial educator who happens to run a hedge fund.
3. Have a completely clear unique selling proposition (USP). Realize that “clear to you” doesn’t mean “clear to the investor.” Your USP should answer the question: Why should an investor choose your hedge fund instead of another hedge fund or financial instrument? This, while similar to niching, is more about how you provide a different type of value than other hedge funds.
4. Be more than just a financial tool. Offer the investor a relationship. Offer the investor an experience. Sell those relationships and experiences along with the fund itself. Personally, this is what has kept me using ETRADE despite their relatively high commissions – ETRADE’s customer service is impeccable.

Success Mindset 4: Abundance

This mindset can change every facet of your life. The difference between the abundance mindset and the standard mindset we are born into – or, should I say, society pushes us into – is the difference between night and day. Once you adapt the abundance mindset, magic becomes real; everything you wanted and believed you lacked comes into existence.

The abundance mindset is the opposite of the scarcity mindset, which basically says, “every individual person and thing is valuable beyond belief and I must do everything I can not to lose one.”

The scarcity mindset is the dumbest way to live. It’s also the dumbest way to market.

All of today’s popular sales and marketing techniques are built around the scarcity mindset. Think about it: most marketing attempts to sweep in the largest amount of investors by positioning its product or service as “for everyone.” God forbid the product not be suitable for everyone; that would mean we lose some prospects.

The same goes with sales. Salespeople supplicate whoever they talk to. A huge part of sales techniques is focused on teaching salespeople to do whatever they can to answer or deflect objections. They are not being trained to sell but being trained to not lose a sale. If you ever watch a sales person talking to her customer, it’s blatantly obvious who holds the status in the conversation.

• The scarcity mindset: Do whatever you can not to lose a prospect.
• The abundance mindset: Investors are plentiful – infinite even! If I lose one prospect, there’s another around the corner.

When I was writing my thesis on the subject of male-female mutual attraction in graduate school, I took on some male students who wanted to find girlfriends. I took one of these students to a crowded plaza filled with young women. Our goal was to get him to approach some girls and get their phone numbers. But this guy’s scarcity mindset was so strong it proved impossible. Girls were coming and going, yet he standing there saying, “not that one… let’s wait and see the next one… no, she looks like she’s in a hurry…”

In essence, he was indicating to me that he believed he only had a limited number of chances. But the obvious fact was that he had infinite chances! Should he talk to one girl and get rejected, all he would have to do is walk three feet and try again with the next girl! His mindset told him that the number of girls he could talk to was limited!

Successful hedge funds believe that their growth is unlimited. Unlimited fund growth is built on an unlimited number of investors. Once you take on an abundance mindset, you stop settling for “not losing” and start striving for success. There are enough investors to go around, despite competition, despite poor fund performance, despite lacking marketing capital – a hedge fund with an abundance mindset always finds a way.

Success Mindset 5: Everything Popular Is Wrong

Okay, so this success mindset is actually an Oscar Wilde quote. But this phrase encapsulates a bigger idea, which itself consists of many smaller ones:

1. What’s standard in an industry is usually mediocre, at best.
2. What everyone else is doing is usually what you should be avoiding.
3. There really are “secret methods” to finding success where everyone else is only finding average results.
4. Rules only exist in people’s minds (please note that I’m not talking about laws here).

The theory of evolution can shed some light on this mindset. Industry norms stabilize after evolving to be stable. The weak behaviors get “selected out.” The satisfactory behaviors become the standard, as they produce stable results. But satisfactory behaviors are merely that: satisfactory. What sounds contradictory, though, is that the best behaviors never become the standard. The animal kingdom shows this. The safest strategy is not to take risks. Beta males will always make up the majority of the primate kingdom, as an entire kingdom of alpha males would tear itself apart.

The same is true of the hedge fund industry. There can only be a handful of alphas. The rest of the funds must play it safe and take up beta positions. Will you be an alpha? If not you, then who?

Choose to be an alpha by being aware of what the betas are doing. Simply avoid what they are doing. Specifically, don’t run the same type of marketing. Why do you think ad agencies produce such poor results? It’s simple: They are supplying beta advertisements to beta hedge funds. Avoid ad agencies like subprime mortgages.

If you play the role of the beta, your best bet is to be randomly selected from a group of similar betas. An alpha breaks the industry norms and isn’t selected randomly. An alpha stands out. On purpose.

Here are some hedge fund industry norms you should consider breaking:

1. Pitching your hedge fund in the marketing materials (instead of educating).
2. Rushing and pressuring your investors into a decision.
3. Taking on anxious investors who are likely to pull out at the first sign of trouble.
4. Supplicating to investors.
5. Focusing your entire campaign on fund performance.
6. Running unfocused marketing (using a shotgun when a rifle would be more effective).
7. Renewing your contract with an ad agency that hasn’t brought tangible results in the form of increased ROI.
8. Avoiding experimental marketing because of some sort of “risk” (aren’t we in the finance industry?).
9. 100% transparency (you don’t need to completely open your black box of investing strategies to investors).
10. Spending lots of time inside the hedge fund industry instead of out in the field with investors.

Seriously consider breaking these norms, one at a time if you’ve got cold feet. You’ll be amazed with the results, and your peers won’t believe you when you tell them your strategies.