Ten years ago few hedge managers engaged a public relations firm to provide advice on media relations with the press and marketing communications with investors. Since then the hedge fund industry has grown up and the need to provide a unified message and consistent branding has become a key factor for firms anxious to optimise their financial market and safeguard their brand reputation.
Anthony Payne, the Founder and Group CEO of Peregrine Communications, was among the first communications executives to really understand that hedge funds had a strong message, but were largely hamstrung, often by convention, in getting it heard. Working from this vision Payne began to work with hedge funds in London to advise them how they could communicate more effectively. From this beginning Payne built a practice that is now the European market leader in advising hedge funds on communication.
“A lot of hedge funds are looking to reach institutional investors and reach beyond funds of funds and family offices so they have found it necessary to upgrade their communications,” Payne says. “That means a much more sophisticated job must be done on getting their messaging right and they need to have a coordinated message coming through all their marketing materials: whether this is a power point, a pitch book, an article or speech at a conference. Everything has to have a clear message.”
Holistic approach
Peregrine’s approach to alternative investments is holistic. Though hedge funds are its biggest practice area, the firm advises on the communications needs of players across the financial services market. This includes private equity, retail funds, wealth management, structured investments, venture capital, UCITS, close-ended companies and Exchange Traded Funds. Through a network of affiliated communications consultants, the firm has a global capability extending from Europe to the Middle East, Asia and North America.
Prior to 2008, the marketing of alternative funds happened in what was very much a closed world. Marketing occurred on a one-to-one basis sometimes by word of mouth. There was more demand than supply. Now the opposite is true and supply outstrips demand. What’s more, the investment audience has become more sophisticated as the hedge fund sector has grown in size and moved toward the mainstream.
“A hedge fund firm has to be excellent,” says Payne. “But being excellent isn’t enough either. You have to communicate it. We look for managers who are excellent and who we can help by improving their communication. We only act for managers whom we believe in and who have a story combined with a real edge.”
A tail risk guru
Payne takes the example of Nassim Taleb, the celebrated author of ‘The Black Swan’. Tail risk, of course, has been written about and dissected in a wide variety of academic studies over many years. Indeed, Taleb himself has published several works on it, replete with generous bibliographical annotations.
“Taleb may or may not be the greatest authority on tail risk,” says Payne. “But he did package his point of view and communicated it very strongly though his books, conferences, articles and media interviews. Now when you think of tail risk, you can’t help but think of him.”
In terms of messaging, the lesson Taleb provides is simple. It is a text book case study of how to become a dominant authority in a particular area of thought or endeavour. For alternative funds the implications are clear.
“The messages need to communicate a manager’s real investment edge that strongly differentiates their offer from competitors,” says Payne. “Ultimately their communications activity should be oriented towards helping them own part of their competitive space. This means they need to work out their edge or unique selling proposition, package that effectively and communicate it to all of their key audiences.”
A culture of excellence
The excellence required of hedge funds in portfolio management and stakeholder communications commands a corresponding excellence from intermediaries. For Peregrine, it is essential to have a close and nuanced understanding of what different managers do. To achieve this, the firm has set itself up in a fashion that is quite different from other public relations advisors. Peregrine is probably structured more like an advertising agency where a specific project manager is supported by expertise in house.
That expertise has developed in recent years, getting deeper and more comprehensive as the firm’s client roster and staff expanded. Ermanno Mattio joined Peregrine as partner and head of research in mid-2011 after a 20-year career in the City with several institutions including Barclays De Zoete Wedd, Credit Suisse First Boston and Morgan Stanley. He drives the financial analysis effort and relative messaging.
Other senior members of the team include Paul Wynne whose 20 years of experience includes online marketing communications, brand development and design, and senior consultant Max Hilton who specialises in client message delivery servicing.
“We believe you have to work as a team to deliver the message,” says Payne. “It can’t just be expert comment, which is nice to have but not enough. For a firm to own the space in a sector there needs to be profiles, contributed articles, as well as deeper interviews and conference speeches. The approach has to be layered and consistent, letting a manager stand out and be differentiated from peers. Without giving away the alpha source there is a lot that can be done to differentiate a particular hedge fund manager.”
One major change that hedge funds face is the proliferation of different communications functions: from press relations to investor communications, marketing and a web site presence. In short, an alternative asset manager needs an integrated communications approach. Peregrine seeks to do just this and become the manager’s outsourced marketing communications partner.
“If a fund tries to hire someone to do marketing, there is no way they can cover the ground to do all the things that need to be done,” says Payne. “There is a real requirement for a good outsourced marketing communications partner who will take responsibility for all communications – whether in words, pictures or actions.”
Clear benefits to managers
For growing managers, the benefits of using Peregrine are clear. When they need to upgrade marketing or develop a web site, they can outsource the task to a team already versed in what the manager does. This helps build a strong differentiated message, while facilitating the integration of the different messaging functions and ensuring follow through.
“Our approach means we can really work on the messaging for an alternative investment manager,” Payne says. “PRs that don’t have the capability to work in this way come across as superficial. They don’t have enough knowledge to pitch something complex. But there is lot more to it than just doing thought leadership articles.”
What Peregrine’s seasoned team look to do is to identify and communicate what is the competitive edge that is inherent in a fund manager’s DNA. If this isn’t clear, confusion sets in as investor presentations change and third party marketers may use different messages to target different end investors. Sometimes when funds grow, their communications can lose focus on what was their unique selling point. The need then is to recapture it rather than fall victim to tailoring the message to what it is thought a particular investor may want to hear.
Protecting reputations
Often a key part of maintaining a hedge fund’s brand is to protect the reputation of the key manager. For many years, ‘no comment’ was the default position for many hedge fund firms, faced with sudden media scrutiny as the news cycle landed on their doorstep. The pervasiveness of 21st century mass media and the permanent record available through digital media makes the default position untenable.
“In order to protect the brand you need the ability to provide information that is required by journalists,” says Payne. “That information can often be factual. There has to be monitoring and an active press office function so that hedge funds can avoid stories with mistakes in them appearing in the fist place. If mistakes happen it becomes necessary to actively manage this in real time. Adopting a policy of non-communication or ‘no comment’ will usually result in the very thing that managers are most afraid of – damage to their brand and reputation.”
In its dealings with the press, Peregrine directs journalists to public information, provides background information to media requests or verifies/disproves journalist inquiries as appropriate. When mistakes are made, the firm gets involved in real time and enacts corrections.
“That encourages journalists to be in touch with us to verify and amplify their stories,” says Payne. “By doing this journalists will call us before they write things. It is the same strategy the Labour party and others use in employing a rapid rebuttal system. That interaction and verification is our best protection.”
Early stage of evolution
Though hedge fund investment techniques date back to the 1930s and Lord Keynes, the industry’s first manager is reckoned to be AW Jones in the 1950s. Until about 2000, hedge funds grew but from such small beginnings that the cumulative effect was relatively marginal. Since then things have changed completely but it is still early days for the industry’s development.
“From our perspective this is the beginning of hedge funds growing up and becoming more institutional,” says Payne. “The ones that grasp that first will be the ones with the biggest brands in the future. That is very important.”
A number of the larger firms have strong brand identifies. Unsurprisingly, several of them are owned by public companies like Och-Ziff, Man Group, Blackrockand Blackstone. But apart from these goliaths and a few other very big players, including Peregrine client Brevan Howard, there remains a degree of naivety about how hedge funds market themselves.
This accounts for the over-reliance on third party marketers. Indeed, such firms have expanded sharply in the last few years. In some cases, managers may get all important new assets but with the implied loss of control over its most crucial business asset – its self conception and brand – to a short-term-focused marketing mercenary.
“The problem is that many hedge funds don’t take their marketing very seriously,”says Payne. “They use third party firms, while their internal staff lack all the skills required and PR firms won’t be suited to their specific needs. They need to have a rigorous approach which is then driven through all of their marketing and extends across their various distribution channels.”
The recommended list
Consider consultants, a rising force in directing hedge fund allocations. To be on the recommended list a hedge fund needs to create a powerfully differentiated case. Performance is important but so is perception and a strong brand drives strong perceptions. As Payne points out: “Creating a strong brand doesn’t happen by accident.”
What Peregrine wants to do is help hedge fund firms take responsibility and work with them to closely manage all aspects of their marketing. From the firm’s early days Payne looked to spend a lot of time in his clients’ offices in order to fit in closely as an outsourced marketing communications resource. That approach continues with the Peregrine team taking responsibility for all aspects of the message when a client wants that service.
As an alternative investment specialist, Peregrine also brings a passion to communications and considers itself in the fight. It has launched Peregrine Perspectives with Imperial College Business School to provide an ongoing forum for excellent portfolio managers to meet the news media.
“We see ourselves as a campaigning organisation,” says Payne. “We believe we are here to campaign for hedge funds, not just our clients. One of the most important things hedge funds can do is educate journalists about the value they bring to investment management compared to long only managers.”
The Peregrine team brings a unique combination of skills to serving hedge funds. And they are palpably aware of the opportunities available to managers.
“I was always very excited by the culture of excellence of hedge funds,” says Payne.“They do integrated portfolio management using all the tools in the box. I take the same approach for their communications.”