I was recently watching an old episode of White Collar, the cable drama in which a FBI agent enlists a renowned thief and counterfeiter to solve complex white collar crimes. The episode’s villain, played by Tim Matheson, was a bank robber who successfully held up multiple banks without revealing his identity. The one defined trait this bank robber had was his day job as the manager of a prominent hedge fund.
Perception often overrides reality. As an example, the comprehensively disproven “you only use 10% of your brain” myth is the central theme of the hit 2014 film Lucy, as well as past high-profile movies and TV shows such as Limitless and Heroes. The entire hedge fund industry, scarred by the headline-grabbing stories of Bernie Madoff, and more recently Steve Cohen and Raj Rajaratnam, has been portrayed in films such as Arbitrage, Wall Street 2 and The Other Guys, as a haven for criminals.
Hedge funds may have reached a 12-month high in composite gains in February, according to Citigroup, Inc., but the most recent CFA institute and Edelman Investor Trust Study reveals that even among investors, financial services is the least trusted industry. The CFA Institute has also noted in a separate article that media “are key arbiters of public opinion, determining which activities, organizations, and people are valued and which are distrusted,” citing a 2010 article by the Harvard Business Review. This widespread mistrust of the hedge fund industry has led to stronger oversight by regulatory bodies worldwide. A fast Internet search for the term “SEC hedge fund” immediately reveals that, from 2010 to 2012, over 100 cases involving hedge fund malfeasance were filed. July 2014 also saw the SEC launch a new investigation implicating 44 firms in an insider trading scandal.
These perceptual and regulatory barriers for hedge funds have resulted in heavy due diligence by investors. However, these same barriers provide direct insight into how you can successfully position your hedge fund. Discussions with Dynamo Software clients have suggested that a centralized investor relations platform, with intuitive and robust navigation, is a compelling tool for proving exceptional fund administration and compliance practices. Relationship management platforms integrated with common office software and leading data feeds ensure that no quantitative or qualitative data is missed. Documents and records obtained through an email platform (such as Gmail® or Outlook®) can be instantly imported, and tagged with configurable criteria that are easily understood by the firm.
Performance figures and external benchmarks can also be seamlessly added to the system and into a single personalized dashboard. Combined with relationship management systems’ ability to instantly run and deliver reports to desired contacts, hedge fund marketers can offer a dynamic and comprehensive snapshot of both a hedge fund’s performance while reassessing regular transparency for potential investors.
Marketers can also point out that a best-in-breed relationship management platform offers internal benefits for hedge fund investment firms. Placing all relevant data in a single system, accessible by all team members, provides total transparency for how investments are tracked and managed. The ability to assign tasks and reminder flags within the platform provides further accountability for team members’ responsibilities.
Supplementing a relationship management platform with an integrated online investor portal provides an additional valuable marketing edge for hedge funds. Offering all relevant investor data on demand, through a secure reporting system further builds trust through transparency. Portals also offer the opportunity to prominently display your firm’s branding and associate the values of security and reliability with your investment portfolio.
Governments worldwide continue to add new and highly diverse compliance mandates, but as Will Ferrell’s Allen Gamble pointed out in The Other Guys, regulatory bodies like the SEC “are the best at these types of investigations…outside of Enron…and AIG; and Bernie Madoff; WorldCom, Bear Stearns, Lehman Brothers…” The next hedge fund scandal could appear at any time, and aggressively marketing a complete due diligence program to prospects will insulate your firm’s reputation when hedge funds come under scrutiny once again.