Investors face tough decisions when deciding how to allocate capital. After all, choosing between thousands of funds is a complicated process.
Here are 5 simple questions investors ask when selecting a fund that’s right for them and how a fund should answer in order to give themselves the best chance of engagement.
What is the strategy?
Investors need to really understand the fund’s strategy so that they can make an informed decision about whether it suits their investment narrative.
This strategy should be clearly and concisely articulated. Prospective investors are turned off by complex explanations and a lack of clarity. These are serious problems that need fixing fast. Be clear, concise and transparent with all marketing documentation so investors can easily assess whether your strategy is right for them.
Managers often fall into the trap of trying to describe a unique strategy in a complicated way. You are better served explain the strategy with simplicity and clarity, and then proving your ability to execute on it.
Which is the best performing fund in the sector?
“Comparing hedge funds to their strategy peers, or cohorts, was a more reliable method than factors for isolating manager skill from underlying beta and luck.”
Because of the complexity and wide-ranging nature of hedge funds, analyzing performance is only beneficial if it is done as a competitive analysis against a peer group. To use a tired, old phrase, investors must compare apples with apples.
Consequently, good marketers know that performance without peer comparison means little. It’s essential to ensure this sort of analysis is on hand, and ready to send to interested investors. This allows investors to make informed decisions based on relative performance. Fund marketers and managers should also be using this information internally to understand both their fund´s true ability and the market perception.
Does this fund match my investment mandate?
Investors always have a mandate. Whether based on returns, fund size, volatility or Sharpe ratio, they need to understand the basics in order to assess fit. If this information is not readily available, it slows down investment decisions and can force investors elsewhere. Transparency in your fundraising process is key.
To give investors what they want, marketers must make sure they can answer any questions. To do this efficiently, keep factsheets up to date at all times and have the latest versions available for distribution and download.
Would I trust this fund’s leadership and management with my capital?
Managing money is still largely about relationships. And no relationship is more important than that of a fund manager with their investors. Manager track record, style and history need to be kept up to date by marketers so that potential investors can easily learn who will be managing any future investment.
Investors also like to see that a manager is committed to the fund. There’s no better way to prove this than to see that the manager has ‘skin in the game’, with their own capital invested. Again, this is a question that’s be regularly asked by investors, so including it in a transparent way from the outset is an easy addition to any set of marketing materials. Where possible, including information on other investors as well is another great way to provide validation and trust in your fundraising process.
Has a fund been personally recommended?
From restaurants to Netflix, personalized recommendations are best. Hedge funds are no different, with funds relying heavily on word of mouth and networks.
“Nothing influences people more than a recommendation of a trusted friend. A trusted referral influences people more than the best broadcast message”
Inflows depend on many aspects of marketing – such as those defined above – but the most powerful way to create positive asset flows is to ask for referrals from your existing investors and professional network. If you’re proud of the work you’re doing, this process should be one you’re happy to undertake. By personally spreading the good news about your fund, you’ll create demand that converts into inflows.
You can help by hosting events that get people talking about your brand and fund. Another fundamental part of winning personalized recommendations is to deliver first class service from top to bottom. Do that, and people will happily recommend you.
It’s amazing how many funds are failing to deliver efficient answers to these simple questions. Make sure you have the fundamentals in place and you can get ahead of the game when marketing your fund. If you do, capital inflows will follow.
Trying to raise assets for your fund? Edgefolio can help. Get in touch today!
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