As the ban on hedge fund, private equity fund and venture capital fund "advertising" is set to lift on 23 September, most funds are wondering if they should take advantage of the opportunity or sit it out.
Of most immediate concern will be whether the chance to advertise, reach out to the media, or otherwise market their expertise will actually help funds repair reputations tarnished during the financial crisis, says financial services reputation expert Davia Temin (pictured).
"Financial services marketing is tricky at best. And, these are sophisticated, complex investments that must be thoroughly understood before customers make an investment. Any public marketing campaign would have to be equally sophisticated, substantive, and innovative," says Temin, who ran corporate marketing for Citicorp Investment Bank; Scudder, Stevens and Clark; Schroders in the US; and GE Capital before starting Temin and Company in 1997. "These funds are not consumer packaged goods, so the same type of commercial advertising or outreach will not suffice. Yet, the industry has been under a reputational cloud, and funds now have the opportunity to tell their stories as well as underscore their strategies, expertise, and returns, as the markets recover.
"Hedge funds in particular received some of the heaviest blame from ‘Main Street’ for the country’s financial woes, and 80-year-old securities regulations prohibited funds from rebutting their critics.”
According to a NBC News and WSJ Poll conducted earlier this month, public opinion is 42 per cent negative for New York financial institutions, while only 14 per cent have a favourable view, and the remainder is either "no opinion" or "neutral" on the subject.
With the SEC’s recent approval of a JOBS Act provision lifting the ban on fund solicitation, funds will be free to start "general solicitation" on 23 September. This change ushers in an important shift in how investments are sold in hedge funds, private equity funds, and venture capital funds – who had by law remained largely silent in advertising and the media.
"The financial services industry lost a significant amount of the public’s trust as a result of the financial crisis and its aftermath. If funds can enter the media markets in exactly the right way, they have an opportunity to not only gain new clients, but to regain some of their lost lustre,” says Temin.
Potential pitfalls of ad ban lift
"However, the challenge will be how to opportunistically get their message out without creating new reasons for the ban to be put back in place," says Suzanne Oaks, managing director of Temin and Company. "There may be a need for more self-monitoring within the industry, just as other professional sectors have instituted."
"Advertising could prove both a boon and a bane for the funds," continues Temin. "Those who jump into advertising or other marketing activities without thinking through a strategy could run the risk of harming their entire industry."
Advice: proceed carefully, with substance
How can hedge funds take advantage of the new regulations to professionally and effectively distinguish themselves from their competition, and better illuminate what they actually provide for investors?
"As solicitation – broadly defined – has been allowed for many professions such as physicians and attorneys, most have proceeded very carefully," Temin says. The best in these industries have "looked at their goals, and then figured out substantive ways to get their message out to their audiences and the public."
"Thought leadership," or "content marketing," is one path she recommends. "Serious professional players distinguish themselves from ambulance chasers through their ideas, expertise and opinions. They contribute to the general knowledge base of their industry, and now, so can serious investment funds. The JOBS Act opens up opportunities for funds to produce and release impressive content."
Steps to success
"Ultimately, to be successful in exercising the freedom afforded by the new rule, hedge funds need a specific strategy," says Temin, who advises that the appropriate steps include:
• Rebuilding trust and value with stakeholders
• Demonstrating self-awareness of one’s image in the market
• Avoiding pitfalls by not rushing into action too quickly and deploying a sound strategy
• Showing a willingness to learn from past mistakes
• Becoming thought leaders
"The hedge funds, private equity firms and venture capital firms who demonstrate these qualities, and adapt quickly to their changing landscape, will boost their reputations, and attract more qualified investors. There are clear opportunities here, and the best will take wise advantage of them," adds Temin.
