Article n°5 - 6 min
Why Hedge Funds Should Invest In Branding?
Breaking Through Information Overload
Beyond the Numbers
The Reality of Fund Selection
One of the most common missteps among smaller hedge funds is failing to understand the selection process investors rely on when selecting funds.
This process usually starts by examining a firm’s operational setup, the experience of its team, its investment strategy targeting a specific market inefficiency, unique competitive advantage, risk management practices, past performance, choice of service providers, and fund terms. Any weakness in these areas can lead to a firm’s swift exclusion from consideration. In certain cases, a small adjustment can make a fund significantly more attractive to potential investors.
While fund performance often serves as the primary screening tool and eliminates many managers, once a certain performance threshold is met, its relative weight in the decision process is generally lower than most hedge funds assume.
Having a strong brand is about being able to clearly articulate advantages a fund might have beyond its performance to ensure that its strength and competitive advantage don’t get unnoticed.
Understanding the selection process
Today's investors need more than just good returns to feel confident about their choices. This is clearly shown by how new funds from well-known asset managers can raise huge amounts of assets before they even have their own track record.
These managers' previous experience at respected firms or banks acts as a powerful brand that investors trust. Meanwhile, many smaller funds with proven track records struggle to attract attention simply because they lack the same brand recognition.
The Power of Brand During Market Downturns
A strong brand becomes especially valuable when markets get tough. During periods of poor performance, funds with strong brands are more likely to keep their investors. This is because their brand represents trust, stability, and a track record of weathering difficult times.
Recent surveys show that after performance, investors stick with funds based on intangible values like reputation, integrity, and trust - all elements of a strong brand. In an industry where trust is everything, brand power can mean the difference between keeping assets during tough times and watching them walk out the door.
Fund managers are competing for attention in an incredibly crowded market. Every year, investors are bombarded with thousands of emails and phone calls from hedge funds wanting meetings.
With over 15,000 hedge funds to choose from, investors need a way to filter through this flood of information. Brand recognition has become their shortcut - a way to quickly decide which funds are worth their time. Even smaller funds with excellent performance often struggle to get noticed if they don't stand out in other ways.
These funds can highlight a number of things that they consider a competitive advantage. It could be their operational infrastructure, talent, tech, investment philosophy etc.
Why Track Record Isn't Enough