Demand from hedge fund managers for third party marketing and distribution solutions has increased, according to Agecroft Partners, a third party marketeer (TPM).
Phil Irvine, director of PiRho Investment Consulting, said: “A good TPM that has a reputation for being straight forward and representing ‘good’ funds, can get a fund noticed above the noise of the crowd. Specialist regional TPM’s may be an efficient way for a fund management organisation to gain assets from areas they do not cover well internally. Also almost as importantly, many fund managers are not great at talking to investors and a good TPM can give feedback where they need to improve. It can be awkward for internal marketing teams to give this type of feedback as they have to work with the fund manager on a day to day basis.”
The number of hedge funds has grown substantially over the years, and some investors can be contacted by hundreds of managers a week. The top TPMs are said to act like a filter for high quality managers and make it easier for investors to evaluate providers. In addition, a number of high quality firms are difficult to find since they rarely show up in hedge fund databases.
Irvine continued: “The biggest challenge is in selling good small funds where investors say they will invest when it becomes larger. This ‘chicken and egg’ problem does not have easy answers, but incentivised TPM’s are often more able than internal marketers in gaining initial investors.”
Irvine also warned that when selecting a TPM, there needs to be an extensive vetting process: “I don’t think all TPMs are equal. Many services of a fund manager can be outsourced and I believe that it is legitimate for marketing to be one of them. However like all outsourced services one needs to feel that they are a) providing value and b) representing the fund in a fair manner. I think it is easiest to judge the quality of TPMs when they are representing new funds with limited track records.
As with most out-sourced partners proper homework is required and not just choose the cheapest. The TPM is often the first point of contact with a new investor and one only makes a first impression once. References should be checked and I think that the TPM should be examined not only on their ability to market but also on how well they really understand the fund and its strategy”.