It may be high on many CTA’s New Year’s resolutions this year – do a better job of marketing. So it is worth speaking with someone who specializes in the field of communicating, Kristin Fox founder and principal of FoxInspires LLC. Launched in 2008, FoxInspires provides access to intelligence and information that helps investors and managers understand each other better. Prior to starting her firm, Fox worked as a journalist for more than 20 years and served as vice president of news and research, and executive editor for HedgeWorld. Before that, she worked at Crain’s Pensions & Investments and broke into this space with Hedge Fund Research, in Chicago. She spoke with JLN Managed Futures Newsletter editor Jim Kharouf about the key to putting your strategies in the right way for the right investors.
Q: How did you get started in the alternative investment space?
A: There was an ad in the Society of Professional Journalists newsletter. Joe Nicholas at Hedge Fund Research (HFR) was looking to change his newsletter into a magazine and do some other things. I told him I didn’t know the difference between a hedge fund and a hedge hog but I could learn. And I did. We had 70 funds in the data base when I started and we had 1,700 when I left there.
I was lucky because a lot of people who went on to become big fund managers like Frank Meyer, who patiently answered all my questions. And I sat on the floor and read offering memorandums and that’s how I learned the business. I left in late 1998.
In 2000, we took Hedge World live and I was there from the beginning until we sold it to Thomson Reuters in 2005. Thomson then let my whole team go in 2008. Then after watching Lehman Brothers collapse, I decided to launch a business where I worked with managers and investors, helping them understand each other.
There are a lot of extraordinary traders and very good managers out there and a lot of investors who are looking for them. But they don’t necessarily know how to tell their story and find each other. That’s what I do. Help managers understand who their audience is and what their real story is. What is their edge? What makes them different from anyone else out there? Because when you’re buying into a hedge fund or CTA, you’re buying someone else’s brain. So I go in and help them explain what their real edge is.
Q: How do you do that? How do you approach it?
A: I take those same skills I learned as a journalist. I put them in a position to take a good hard look at themselves and ask, ‘What is it I do that I honestly in my heart truly believe I can do better than anyone else?’
When you start a hedge fund, you do it because you believe you have a unique perspective on the market. It’s really about, what is your story? Why are you in this business? What makes you qualified to do this? And most of what I spend my time doing with people is not just figuring out what their edge is, but who their audience is. When you first start out, you think there is this great pool of money out there and I’m going to chase all of it. And that never works. Sooner or later you discover there are audiences and investors who are perfect for your fund. You can’t go out there and grab all the money on the planet. For the average manager, the toughest thing for them to determine is, what’s their place in the world. A lot of that has to do with their capacity, risk profile, all of the different things that make them unique.
Q: This is equally applicable to the CTA space, where you may have a couple guys who are great traders but don’t understand the marketing side of the business. So how do you then turn that into a message that can be translated to an investor audience?
A: Typically, we go through an interview process where we figure out who they are and what their niche is in the market. Ultimately, you’re being bought to be part of a portfolio. And the significant thing about alternative investments, as opposed to mutual funds, is that they are bought and not sold. By that I mean, with a mutual fund you have a prospectus from the internet or wherever and you say “I want one of these, these and these.” With an alternative investment, CTA, hedge fund or private equity, you’re buying expertise that is special and access to markets. Each one is a little different. Just because you have two people doing the same strategy doesn’t mean they are doing the same thing.
So it’s very important to tell the story and put together a pitch book and one-pager so that you have a coherent story, not which pigeon-holes you fit in and an institutional investor can wrap your brain around, but what is it that you do? That’s really what it comes down to here and is the core of the marketing materials.
I work with them to help comfortably tell the story. I had one poor guy who was an absolute genius, and his gift was higher mathematics. And when he first came to me, his pitch book was 47 pages of math. We got it down to seven pages without a single equation, because with the math, there were precious few investors who would ever understand it.
I get them to boil it down to what is the essence and progressive essence, because you want something to take to a conference that is an easy introduction. If you meet someone at a cocktail party, you don’t want to throw a Power Point presentation at them. The one page is really your story, and I like to do it as a narrative about the fund but also with the person behind the fund so that it draws in a potential investor who wants to know more.
The next level is more substantive materials. For funds ready for institutional types of money, I recommend that they have one set of presentations for high net worth investors, versus institutions and consultants who are thinking in a very different direction.
Q: With this New Year, what are the main keys to getting your marketing materials ready?
A: I can’t stress enough the importance of really knowing and understanding why, what you do is really unique and communicating that it is unique. There is a lot of new money looking for new homes right now. In 2008 and 2009, a lot of people sat on the sidelines. In the midst of all that chaos, the game reset to zero. With hedge funds and CTAs, the reason they are generating alpha is that they are exploiting inefficiencies in the market that no one else is. Now the market has changed. And that opened up entirely new inefficiencies. If you can explain to investors, very simply, what it is you do, how you generate alpha, and what your risk profile is, you stand a far better chance to get some of that money that is walking around.
It always needs to be a fishhook, because each piece that you generate and each meeting you have should drive the next meeting, with the ultimate goal of somebody writing a check. It would be lovely, and it does happen on occasion, if someone writes a check on the first meeting. But that’s a perfect storm. The best marketers know that each meeting leads to the next and it is almost like the old soap operas that made you want to watch the next episode. You want to make sure there’s always another sequel.
Q: What do you think of the use of social media, or using newer media tools such as video, or other presentation tools?
A: I think video can work for you. But I’m not a big fan of the idea that, just because you have a video camera you should make a film of your presentation.
I do what I call a presentation boot camp, where I work with them on coming up with the right answers. I do mock interviews so they can get comfortable with their presentations. Very few can do a TV type thing.
I have one client though, who this works really well for, using Twitter. You can’t use it, of course, to discuss your fund. But my perspective is that every manager running an alternative investment has an expertise. There’s nothing stopping him from promoting himself as an expert. In this case, the manager is an inflation expert and the entire ultra-high net worth population lives in fear of hyper inflation. So every day, he tweets several things about inflation. And he’s really established himself as an inflation expert, which he was, because he came from PIMCO, as one of the drafters of the (Treasury Protected Securities) TIPS. Whitney Tilson built his entire fund on being a really good writer. It wasn’t just because he was writing about his fund. But people trusted him because he expressed himself well.
At the core of marketing yourself, take out all the documents, they need to know what their expertise is and they need to express that eloquently.
Q: Looking at the overall marketplace today, there seems to be a return to alternative investments. What’s the potential for this market?
A: This past year, there’s been a lot of tire kicking. I think in 2011, we’ll see more buying. What we don’t want to see, although we probably will, is people coming into the CTA side where there tend to be higher returns with more volatility, just for a portfolio kicker. From my perspective, that’s not a sensible way to invest.