Alternative Investment Management Association
Hume Brophy Communications
Late last year, AIMA and senior hedge fund industry figures decided that commonly held external (mis)perceptions about the hedge fund industry needed to be addressed.
The rationale is thus: Because of the enormous year-on-year growth of the industry - in 1990 there were 530 hedge funds worldwide, there are now close to 10,000 - the media will be unrelenting in its coverage of hedge funds. Avoiding the press is not viable. Instead, the industry must learn how to manage it optimally.
A smart move. Seldom has the path between truth and perception been so divergent.
The perception: In the worst excesses, hedge funds are destructive. They are unregulated, they are risky. They should be avoided.
The truth: hedge funds are now at the forefront of the development of the investment management industry. They can provide enormous investment benefits. The industry has excellent working relationships with regulators worldwide. The industry is attracting the best talent in the marketplace. Hedge funds are increasingly mainstream with institutional strength controls and governance and are now an integral part of all institutional investors’ investment strategies.
Walek & Associates, the respected US PR and Research firm recently published some revealing media statistics. Last year, globally, there were almost 40,000 newspaper, magazine, online and newswire articles that mentioned hedge funds. That’s over 100 articles per day. It is also nearly a 50% increase on 2004 and is more than six times the number that appeared in 2000.
What do these figures tell us? Above all, the hedge fund industry is now indelibly etched in the public consciousness. Its every move will be scrutinised for years to come. Whether the industry likes it or not, the press are going to continue writing about hedge funds. In part, this is down to the success of the hedge fund industry. In part, it is the mystique, and, perceived secrecy and lack of transparency of the industry.
Is it simply a case of uninformed prejudice? Perhaps. Has the industry been doing enough to try and reverse this perception? No.
Why the secrecy?
Hedge funds have traditionally been more guarded than other companies throughout the financial services industry. For varying reasons, many haven’t yet recognised the necessity for, or benefit of a well-thought-out communications strategy. Either they are already successful, have no remaining capacity in their funds, or, they have no interest in divulging their strategy and approach. Fair enough, but it doesn’t discourage the perception of the hedge fund industry as secretive and non-transparent.
Perhaps there is also a touch of ‘vicious circle’ about it. The more negative the press coverage, the more the industry battens down its proverbial hatches. The result? Further impasse between the two sides. The media continues a misconstrued negative editorial line on an industry it doesn’t fully understand. The industry is more reluctant to spend valuable time educating the media – whom, it must be said, have a genuine appetite to learn more about all facets of the industry.
Most hedge funds view the media with distrust. It is a truism that people would rather read about what went wrong than what went right, and the press almost certainly prefer to write about it. However, when dealt with properly and equitably, the press is a very important vehicle through which the hedge fund industry can deliver its positive story quickly and directly to the outside world.
People wrongly assume that journalists are out to get them. They are there to do a job and report the news. There are many excellent reporters currently covering hedge funds. More and more media outlets are also now designating specialist hedge fund reporters to their business pages. This is a welcome development. The hedge fund industry has nothing to hide. It doesn’t need to give the impression that it does. It makes no sense to shut the media out simply because one previously had a bad experience with a particular journalist.
In this light, AIMA’s and the industry’s move to change the way it communicates is highly significant. It is no exaggeration to suggest that the fruits of this will set the tone for how the hedge fund industry is viewed externally for years to come.
As the authoritative voice of the hedge fund industry, and by virtue of its strong and established focus on education, regulation and sound practices, AIMA is a perfectly positioned to educate all the various stakeholders.
Importantly, AIMA also represents the full range of hedge fund industry interests internationally - hedge fund managers, funds of hedge fund managers, legal and accounting services, prime brokers, fund administrators.
This gives it unrivalled access to expertise across the hedge fund industry value chain. Hence, its upfront communications objective is to rapidly become the first port of call for the media – and to simultaneously act as a valuable and helpful resource for the media on hedge fund industry issues.
However, it is vital the industry understands that wholesale changes will not occur overnight. Negative newspaper articles will continue to appear. This is a long term project that requires a great deal of time commitment and industry patience.
It is also essential that the industry recognises that simply because it has now decided to engage more, the job is far from complete. There is no obligation for the media to write positively on the industry simply because it has decided to speak to them. Much work and education is needed to make this a success. Support from across the industry is imperative.
Given the sense of community within the global hedge fund industry - which adds immeasurably to the overall strength of AIMA - it would be unusual if the required input proved less than forthcoming.
In this respect, the recent establishment of AIMA’s new Communications Committee1 has put down a valuable marker for how the industry can be galvanised. Comprised of more than 25 experienced volunteers from across the industry, the Communications Committee will be the ‘engine room’ for much of the work to be carried out.
The group is there to generate up-to-date communications materials such as key educational industry fact sheets. Members will also help to identify skilled people from across member companies to speak on technical industry issues. It will also help to commission educational articles and opinion pieces that can be used to educate all stakeholders
Additionally, the Committee will use its expertise to support the development of existing industry communication avenues such as the AIMA website and the AIMA Journal.
As well as being ambassadors for the industry, there are other business reasons why members should maximise their communications.
Market growth and increased competition means it is more important than ever for hedge fund managers and service providers to get their name and product recognised – competition for investors and capital has never been higher.
Those within the hedge fund industry that are currently willing to stick their heads above the parapet and demonstrate industry leadership are inevitably gaining significant market advantages, particularly with more institutional investors entering the market.
So how best to go about building a successful and fruitful relationship with the media? Firstly, and most importantly, it is necessary to create a co-dependency. Strong relationships with the press are the cornerstone of quality media communications. While this will involve a certain level of time input, it will put the correct building blocks in place. The press can need you as much as you need them. Journalists are always looking for story ideas and topics to write about. By alerting them to or sharing with them, news or industry issues, you suddenly become a source that they can rely on. Be open, and, most importantly, honest with them.
Journalists are wary of companies who communicate only when there is good news to report. You earn respect and credibility by being willing to discuss potentially negative news and by always making yourself available – in the good times and bad. Frankly, it also offers the opportunity to give your side of the story. Always look for the opportunity to have your say and put your argument across. News is news, and the probability of it being reported is quite likely, regardless of how you feel about it.
Above all, the industry needs to ask itself – what happens if it does nothing, so that the status quo remains? Does it actually matter? Is it ‘business critical’ to change this?
Arguably, sustained negative coverage will place unnecessary focus on the industry. This could have a knock-on effect on the level of regulation the industry is subjected to, the actions of politicians, and the decisions of investors.
To paraphrase the conclusion to Nick Evans’ latest EuroHedge editorial: The risk of hedge funds being obscure is now greater than the risk of being transparent. This is not the time to be invisible.