creative integrated marketing

We are a creative integrated marketing consultancy specialising in 4 business areas: Business Services, Financial Services, Automotive Aftermarket and Recruitment Advertising. These blogs tell of some of our experiences working in these business areas.

14 August 2013

Inside private equity and hedge funds

When you stand in front of a building which houses a large investment bank, such as Merrill Lynch or Morgan Stanley or Goldman Sachs, or a financial powerhouse such as Citibank or Deutsch Bank, you know very clearly whose office you are in front of regardless of whether you are in London, Tokyo or New York. Not so with the premises of private equity or hedge funds, even those with tens of billions under management. It isn't remotely obvious you are in the presence of a financial institution.

The difference lies in part because of financial regulation and the exclusive non-retail nature of investors who participate in unlisted private equity and hedge fund products. Now both private equity and hedge fund managers are coming under mounting scrutiny by tax authorities, governments and regulators, and given the nature of their size and appetite for risk, must arguably change the way they communicate, position themselves and report on investment activity. This is particularly true of hedge funds but applies to private equity managers too.

I believe change will be led in the UK and taken up retrospectively by some US fund managers because in the UK we are more likely to respond and innovate in the light of such market pressures and, honestly, we tend to be better at standards of reporting.

So, how will many of the estimated 6,500 hedge funds who manage over $2 trillion in assets, and the thousands of private equity managers who manage over $3 trillion, respond in the light of the US Jobs Act, the publishing of SEC interpretative guidelines and growing pressure from institutional investors?

Let’s avoid the term "transparency" because it takes us no further towards a meaningful solution. Private equity and hedge fund managers could, I believe, respond in the following ways:

  • Strategic and holistic review of investment activity reporting
  • Implementation of a formal LP reporting comms programme akin to a PLC in nature and tone
  • Careful positioning of the investment manager and more sophisticated, professional communication of investment model, investment process, investment committee and reconciliation of results
  • More robust benchmarking of performance against peers; not just useful indices (Preqin has started by creating an algorithm for performance but a better solution creating a Gold Standard and signed by several hundred leading LPs, would be more valuable)
  • Interactive, tech-enabled and delivered reporting of investment activity, capital draw downs, portfolio programmes, fees and management costs
  • Condensed RPI, anti-money laundering, investment management, investigative background checks on invested companies, JV candidates and those with significant fiduciary and operating responsibility both within firms and invested companies, could be pooled to create a new standard of corporate governance
  • Remuneration models require overhauling to take into consideration LP mood, capital flows over the last six to eight years and individual fund performance

This isn't about waiting, consulting and then talking about change. PLCs face this scrutiny all the time and rebellions by standalone investors or packs of investors: institutional and disruptive change enablers. Hedge fund and private equity management teams can respond now and differentiate themselves through communication without waiting. I suspect most won't and will want to wait. But I'd like to think that some leaders take up the challenge and in doing so protect their businesses, build assets and trust, maintaining the private nature of their core activity but changing the way they position, communicate and report for good, and for that of LPs and onlookers.

Chris Abraham heads AEP advertising, a creative marketing comms agency with regional and international asset management clients.

AEP Advertising We are a b2b and b2c agency providing integrated branding, strategic and lead generation marketing communications. We have deep specialist knowledge in the business services, financial services, automotive and recruitment advertising sectors spanning over 40 years.

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