In a recent series of articles, we discussed the role played by third-party marketers (or 3PM) in helping hedge fund managers increase assets under management. 3PM firms are expected to be experienced in investment marketing and have sales professionals who help raise hedge fund assets and grow the investor base through their relationships with institutional investors, foundations, endowments, broker-dealers, investment advisors and public or private retirement plans.
Third-party marketers offer a wide range of services that often include creating a marketing plan, producing marketing materials, helping develop new markets, building an investor CRM, handling media relations, following up with potential investors and identifying the right kinds of investors for the given manager.
A Shared Responsibility
By using the services of a third-party marketer, hedge funds can reach potential investors in a more efficient manner than if they tried to do all the sales and marketing themselves. But it’s important to realize, however, that hedge fund marketing is a process that should not be fully outsourced. Instead, the marketing of a hedge fund should be a shared responsibility between the hedge fund and the 3PM.
Most hedge fund managers are specialists in managing their investors’ portfolios. They aren’t necessarily experts when it comes to raising hedge fund assets by cultivating and nurturing relationships with new investors. This is where the third-party marketer shines by providing sales and marketing expertise that’s specifically related to raising assets under management.
Unfortunately, some hedge fund managers make the mistake of thinking that once they hire a third-party marketer they can just hand over the sales and marketing functions and focus on other things. This can often be a recipe for failure. While the 3PM may possess critical sales and marketing expertise, an outsourced third-party marketer cannot — and should not — be expected to carry the entire weight of sales and marketing for a hedge fund.
Who Handles What
In a typical relationship, the third-party marketer will do the sales and marketing “blocking and tackling” by performing all of the tasks noted above and frequently more. The goal is to make investors aware that the hedge fund exists and then clearly communicate the benefits of investing in that particular fund.
Essentially, the 3PM manages the sales cycle for the hedge fund. When the time is right, the 3PM will bring the manager and/or chief investment officer into the sales process to meet with and help further educate potential investors about the fund, as well as answer any detailed questions they may have.
At some point, the hedge fund manager must be prepared to put on the “sales” hat. It’s important that potential investors have a high comfort level with the person who will ultimately be making the investment decisions. This is the crucial part of the sales and marketing process that needs to be met with a level of directness, honesty, and sincerity that should not be outsourced to a 3PM.
The relationship a hedge fund has with its third-party marketer can be one of the most important components of a hedge fund’s ultimate success. Both the hedge fund manager and the 3PM are working toward the same goal: attracting new investors to the fund. But remember that it’s a shared responsibility, not just something managers can set and forget.
Diron Tappin is the Managing Director of 4Peaks Capital, a wholly owned subsidiary of M.S. Howells & Co., a boutique institutional broker-dealer based in Scottsdale, Arizona.