Why Every Hedge Fund Needs an Out-of-House Marketer

Something must be working. Despite the poor relative performance of hedge funds, more investors are choosing hedge funds as their preferred financial instruments.

Why You Need a Hedge Fund Marketer

A hedge fund is really just a team of people. And technically, a hedge fund only really needs two people: the CEO and the fund manager. Both of these two people have specific qualifications that make them useful to the hedge fund. The manager is an expert at choosing financial instruments. The CEO focuses on decisions that keep the fund alive and thriving. They have something in common: The success of the hedge fund is directly linked to their own success. They have skin in the game: If the hedge fund crashes, they lose money; if the hedge fund booms, they get rich(er).

Yet one thing is clear: without investors, a hedge fund cannot function. And without marketing the hedge fund, the fund cannot expose itself to investors. So besides the jobs of the CEO and the fund manager, marketing is imperative.

So with this is mind, why would the hedge fund want to hire marketers who don’t also have skin in the game? Why would they, for example, hire a team of in-house marketers on a salary? These marketers get paid whether or not the hedge fund flourishes. And as an in-house marketer, your employee is much more likely to play it safe, creating marketing campaigns that mimic others in the industry, and therefore hurting any attempts to get your hedge fund to stand out from the crowd.

Going with an out-of-house advertising agency gives the same results. For a fixed fee, they’ll create some “creative” or “fresh” ads for your hedge fund and pass the responsibility off to you. Good luck getting a positive ROI on that full-page magazine ad, which really did nothing but display the name of your hedge fund to an audience more interested in reading obituaries (after all, they appear in every issue of the Economist) than reading funds’ mottos.

What to Look for in a Hedge Fund Marketer

This brings me to my main point: Hedge funds must also ensure that their marketers have (or want to have) skin in the game. Because of the difficulty of marketing a hedge fund, many marketers prefer to take a fixed fee, which relieves them of the responsibility of actually producing results. When a hedge fund looks for an out-of-house marketer, it should take into account the marketer’s quote. The quote should contain a clause that implies skin in the game, for example, a portion of the money raised (in the form of management fees) from the campaign.

A marketer who asks for a portion of the money raised is telling you two things:

1. His goal truly is to get you investors, not to simply produce marketing materials.
2. He has confidence that his campaign will actually get you investors. Otherwise, he would just take a fixed fee and run.

Take these two criteria to heart, and you’ll save money in the long run.