Updated, 8:58 p.m. | It looks like the kind of motivational poster on a college student’s dorm room wall. Snowboarders stand at the peak of a steep mountain, reveling in victory, with the tag line, “Performing in all conditions.”
Instead, it is an advertisement for the $4.3 billion hedge fund Balyasny Asset Management. The fund says it hopes that viewers associate the ad, which is in the latest issue of the publication Pension & Investments, with prudent money management.
The ad is the boldest example yet of a hedge fund taking advantage of recent changes in Securities and Exchange Commission regulations under the 2012 JOBS Act, which lifted a ban on “general solicitation” of investors.
Until now, the changes had been met with caution by an industry that has long benefited from the appearance of exclusivity. Maintaining and cultivating that image, in fact, has been the primary focus of hedge fund marketing efforts for most of the last three decades.
But years of lackluster performance and growing competition for institutional investors like pension funds have made hedge funds warm to the idea of branding. Just do not call it advertising.
“The move is very interesting,” Donald A. Steinbrugge, managing partner at Agecroft Partners, a hedge fund consulting firm, said of the Balyasny ad. “I think the fact that they are doing that will lead to others replicating it.”
Hedge Fund Commercial
Topturn Capital, a $100 million hedge fund, created an ad with images of a professional surfer interspersed with the company’s two founders discussing how managing money is a lot like surfing.
Publish Date February 20, 2014.Since changes to the “general solicitations” rule took effect last fall, some new hedge funds have dipped their toes into the advertising waters, creating videos and posting promotional materials on websites. Last December, Topturn Capital, a $100 million hedge fund, created a three-minute ad for its website with images of a professional surfer surveying rocky waters, interspersed with the company’s two founders discussing how managing money is a lot like surfing.
Older hedge funds with big-name founders have joined in less directly. Bridgewater Associates, the $150 billion hedge fund, posted a video on YouTube a day before the new advertising rules took effect, featuring its billionaire founder, Ray Dalio, in a 30-minute lecture called “How the Economic Machine Works.” Other funds are adding more information to their websites, and fund managers appear more frequently on business networks like CNBC and Bloomberg Television, their advisers say.
Yet even as hedge fund managers begin to test the waters, there is little indication that the floodgates have opened.
“Hedge funds are putting more stuff on their websites, but for right now there is very little general advertising,” said Jay Gould, a hedge fund lawyer at Pillsbury Winthrop Shaw Pittman. “Most fund managers, even at the high level, are not interested.”
Private investment funds remain restricted in the types of investors they may tap under the new S.E.C. rules. The regulator stipulates that they raise money only from “accredited investors” who earn more than $200,000 a year or have assets totaling at least $1 million, excluding property.
Proponents of the looser regulations argue that allowing hedge funds to discuss their performance publicly will make them more accountable and cast light on a dark corner of the financial services market, helping to better inform investors.
Detractors have voiced concern that a proliferation of advertisements will lure unsophisticated investors into investments that they do not fully understand and cannot easily leave. Other critics point out that the hedge funds that choose to advertise will be opening themselves to closer scrutiny by regulators and more frequent audits.
The new advertising rules have also presented an opportunity for hedge funds, which are increasingly going after money from institutional investors like sovereign wealth funds and pension funds. Before the financial crisis, money from institutional investors accounted for just a third of the hedge fund industry’s assets, according to a recent survey by Deutsche Bank. Today, they contribute two-thirds of the new money flowing into hedge funds.
As a result, hedge fund executives, once more at home discussing their performance in private clubs and at high society events, are having to adjust to a new reality, where they are competing with larger money management firms like Blackstone and Fidelity. Those firms already spend large sums on marketing.
“The JOBS act rules have permitted investment managers to feel more comfortable about branding their business more generally,” Mr. Gould said.
For Balyasny, the decision to advertise was simple, said Colin Lancaster, senior managing director at the fund. Balyasny, which is based in Chicago, recently began raising new money from investors after having closed its doors to outside investors for two and a half years. When the marketing team at Pensions & Investments asked the hedge fund if it would consider running an ad, the fund agreed and paid roughly $6,000 for a half-page spread, Mr. Lancaster said.
“Businesses like ours are really unsophisticated,” he said, referring to the level of advertising expertise in the hedge fund industry.
The decision to use the image of snowboarders? “It took all of seven minutes,” Mr. Lancaster said. “We said, ‘That’s a neat picture that conveys who we are.’ ” He added that many of the traders in Balyasny’s 41 portfolio teams globally like to participate together in athletic events.