Many people were totally unfamiliar with the hedge fund concept until only a few years ago. It often surprises people to learn that hedge funds have existed in their basic form since Alfred Jones started his hedge fund in the early 1950’s. In the following video, I give an overview of the history of hedge funds, what makes up a hedge fund and how hedge funds operate.

Video Transcript/Summary: The strategies and tips provided within this video module include:

Alfred Jones founded the first hedge fund in 1949 by matching short sales with long sales of stocks to manage risk in his portfolio.
The term hedge fund refers to this method of investing and how it hedges risk by combining long and short bets.
There are trillions of dollars in the hedge fund industry and more money pouring into hedge funds every year.
Some of the earliest hedge fund managers were Warren Buffet and George Soros.
The performance fee aligns the hedge fund manager’s interest with that of the investors.
Hedge fund portfolios can include almost anything which has led to a huge growth in the industry.
Hedge funds are mostly restricted from direct marketing to retail investors and must market to accredited and institutional investors.
The hedge fund industry can be highly-lucrative.
Knowledge is the hedge fund manager’s most valuable asset, therefore they are very private.

Transcript for History of Hedge Funds

Hello, this is Richard Wilson and today we’re going to talk about the history of hedge funds or the history of the hedge fund industry. This is a topic which is often confused with the term hedge fund and what makes up a hedge fund especially with people that work outside of finance. Most people on the financial industry have a pretty good grasp of what a hedge fund is or is not. But people who work just in business or in journalism or media or other areas are often confused by what would make a hedge fund versus something else. So the history of a hedge fund can kind of clear that up.

So first of, in 1949 there was a person, Alfred Jones, who was a journalist. He was also an author and sociologist, and he basically started the first hedge fund. What he looked at was the performance of securities in the broader markets and he looked at how he could pair trade or mesh some short sales with long sales of stocks to kind of manage risks within a portfolio. And so in a very literal sense he was hedging his investments. He would invest in Intel but short with AMD or something such as that.

And so that’s how the term hedge fund came to be. What happened next was that this method of investing became popular, really not till the 50s and the 60s. And in the 1970s it was recorded that there was 150 hedge funds in the industry, probably more if you count really the small ones, and there was also close to a billion dollars in assets which is very small compared to today and then on what source you go to, there’s between $1T and $2T in assets and hedge funds. So an enormous industry compared to a billion dollars.

I’ll give you an example. Just last month $14B in new capital was invested in hedge funds which means besides withdrawals there was actually a $14B increase in total capital in the industry. So just last month it increased 14 times more than it was in the 1970s. Some of the earliest hedge fund managers were Warren Buffet, George Soros and Michael Steinhardt. And since hedge funds were first invented and since the 60s and 70s they’ve evolved and instead of a hedge fund being a fund or portfolio hedges, they’re security investments, a hedge fund has come to mean an investment, a private investment structure which charges both a management and performance fee.

And that performance fee is really key to making something, a hedge fund, because a mutual fund might charge a management fee, and ETF might charge a management fee. But a performance fee really kind of aligns the hedge fund manager’s interest with the investors. So another important thing to remember is that hedge funds now getting glued, commodity investments, bonds, real estate, patent portfolios, commercial financing, currencies, foreign exchange really can include almost anything and that is why hedge funds have grown to such size.

They include such a broad spectrum of investments and the term is used so loosely that the hedge fund industry is now enormous, whereas a term like private equity although has expanded in various types is more concentrated. It’s just one of those terms. Hedge fund has just been used more frequently for more types of investment structures over the years. So that’s why there’s some confusion and some very large growth and some of that confusion around the hedge fund industry has also been created over basically two reasons. The first reason is that in many places such as United States, hedge funds are restricted and how they do it in public marketing and how they perform in public relations.

They can’t do most types of direct marketing as a traditional company could. Because their investments into a hedge fund are mostly restricted to accredited or high-net-worth investors and institutional investors. So that just leads to some confusion because many hedge funds are scared to do any educational or marketing efforts and they’re restricted from doing lots of types of marketing and public relations efforts. And so that is one’s risk and confusion in the industry. The other source is really just out of competitiveness. The hedge fund industry can be very lucrative for a fund manager or a professional in the industry, whether they’re raising capital or managing a portfolio or being an analyst. It can be very lucrative.

And the result is that knowledge is power and knowledge is a hedge fund professional’s greatest asset. Knowledge about investment process research, risk management, fund operations to a hedge fund is there most valuable asset. And if somebody else has all of your knowledge that you can quickly copy everything about your track record and maybe some of your team pedigree. And so it’s actually a very valuable thing to have unique knowledge and the constantly growing set of specialized knowledge within the industry. And because of that, hedge fund managers are not likely to give away their knowledge to the press. They’re not as likely to write books and they’re not as likely to consult with other their hedge funds.

For example, Jack Welch after leaving GE spoke to many different companies and is on the boards of many companies and he has written books about his practices and you don’t find that as much in the hedge fund industry. When a hedge fund executive retires they either have so much money that they don’t care about doing those other things or they’re on the board of a few hedge funds which pay them very handsomely or they go and join as a strategic adviser to a very large hedge fund and they serve that one hedge fund. Typically, they’re not out giving speeches everywhere, writing 6 or 7 books, going on to Oprah, doing interviews with the media all of the time. It’s just more of a competitive, very knowledge-centric industry. And so that can cause some more confusion.

So I hope that helps with the general overview of the history of hedge funds and how it moved from being a hedge portfolio to being more popular in the 60s and the 70s and being more of a management performance fee combination that made up a hedge fund. And then also how it moved from being a billion dollars in assets just in the 1970s, 30 years ago and now just last month gained over $14B and depending on who ask there’s $1T to $2T in the industry. And then we covered the two reasons why hedge funds are a little bit confusing or hard to understand, and that is the first reason about the laws of hedge fund marketing and public relations that restricts them. And second, it’s a very competitive knowledge based industry.

So I hope that’s helped with your understanding of hedge funds. If you’re completing the CHP designation this is important information to know. If you work in the industry it’s probably something you at least already partially know and hopefully it helps. Thanks for your time.

I hope that this video has given you a better understanding of the history of hedge funds and how hedge funds have evolved over the years.

Your friends here at https://investmentcertifications.com

On August 18, 2011 By Richard Wilson

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Hedge Fund Trends

Since we started our hedge fund consulting and media firm we have published thousands of articles and written and received thousands of emails with hedge funds and hedge fund professionals. This experience has given us a lot of perspective on trends in the hedge fund industry. In the following video, I describe the top four hedge fund trends in the industry today.

Video Transcript/Summary: The strategies and tips provided within this video module include:

Due to fraud in the news and some poor performance recently, the importance of transparency and governance has never been higher.
Multi-prime brokerage. Many hedge funds now often work with multiple prime brokers.
The use of investor databases, third party marketing and external capital raising services is on the rise.
Investors want an institutional-quality hedge fund firm even among smaller funds.

Transcript for Hedge Fund Trends

Hello, this is Richard Wilson and welcome to this video. We’re going to be talking today on the top 4 industry trends. So as we started our hedge fund consulting and media firm two years ago, we’ve sent and received over 800,000 e-mails, worked with over 1,000 hedge fund managers, and one thing that has given us is a lot of perspective on trends in the industry. We write daily on hedgeblogger.com and try to pick through news items and different trends we’re seeing in the industry and interviews we’ve done and share them with the industry. And we just want to share what we see as the top 4 trends right now.

If you’re a hedge consultant, service provider, a hedge manager or looking to work in the industry this could be information which can make your business more profitable or advance your career much more quickly by positioning yourself as one of the people whose on top of these trends or who understands it and has taken advantage of what’s about to happen or what is happening. So now let’s get started here.

The first trend is that due to fraud in the news related to hedge funds, some poor performance and some unclear hedge fund policies, not gaining clauses, et cetera. The importance of transparency and governance has never been higher. Those firms should be very proactive in being transparent and having great governance will have an advantage if you’re looking to interview the hedge fund. You can become somewhat of an expert on transparency, 50 ways of hedge fund can become more transparent or 20 things that should be in place for you to have a very strong governance. It’s a huge advantage.

If you’re a hedge fund manager and you’re very proactive on being transparent, doing monthly reporting or weekly reporting on various aspects related to risk or your operations, or you’re very advanced and have best practices in place for governance, that’s a huge advantage because most professionals, most hedge fund managers don’t mention these things when they market their hedge funds. Those that do they’re not always doing that well and if you can consistently be proactively ahead of the curve in these two areas, it will be a huge return on your investment of time and money.

And so I see this as a growing trend and a place where managers with less than a billion under management can put these things in place without having to spend $20M in infrastructure or on certain software and technology. These things can be put in place relatively in low amounts of capital. So those are two very important trends.

Another important trend right now is multi-prime brokerage. I don’t know of many hedge funds with over $100M that do not work with three or more prime brokers. And now what hedge funds are doing is once they get past $5M in assets they’re putting $1M to $2M or $3M with a second prime brokerage firm and after they get past $30M most that I’ve been speaking to are looking to place some assets with a third prime broker. There definitely is a large push by prime brokers to retain more assets and more hedge fund managers so hedge fund managers or sometimes ordinary or two change prime brokers, but there definitely is a trend of a multi-prime brokerage model. Technology companies I speak to are saying a lot of the popularity within their multi-prime technology platforms and the prime brokers I’m speaking to, it meant that they’re often working alongside competitors when serving their clients.

The third trend that we’re seeing here is the use of outside capital raising resources. Most hedge funds have trouble raising the amount of capital they would like to raise; almost everybody would like to be managing more capital. So the use of investor databases, third-party marketing and external capital raising consultants is on the rise. If the hedge fund industry is based on competitive knowledge and we are knowledge workers and time is money because the faster we work, the more capital we can to raise, the more risk we can manage, the more solid investment decisions we can make then it just comes natural that if you can hire an expert in marketing to help you move up that learning curve faster is going to save you money and add value to your firm long-term, instead of spending 300 hours yourself completing your own database of investors, you go to an investor database company and you buy a few investor databases, if that’s, say 200 hours then you might have saved yourself $20,000 or $15,000.

And this is one area that I think will only rise because not only is the hedge industry becoming more competitive but other industries such as commercial real estate, cash management, traditional fund management, they’re all becoming more competitive and what that means is that one investors like a wealth management firm, let’s say Gen Spring Wealth Management, a very large wealth management firm, they’re getting hit from all sides more often. So it’s really exponentially growing the number of inputs they have to them, which means you need to get to your investors faster in multiple modalities, multiple types of marketing materials and you’d be sending them things in the mail, over the phone, over e-mail and you’d be reaching deeper into the market. Maybe going after some investors which aren’t brand name investors which are being sought after by 10,000 different investment companies a year for capital.

So because of all of those factors these capital raising tools are becoming much more important. If you’d like to learn more about third-party marketing we have a free blog with over 200 resources at thirdpartymarketing.com and we have some databases at investordatabases.com.

The fourth trend which is really growing and is more all encompassing and probably more important than any of these others is that investors want an institutional quality firm. They want to have the operations or risk management, the research, the pedigree of a billion-dollar plus firm in a much smaller structure. So to meet that need what’s happening is hedge fund managers are hiring independent administration firms, hiring capital raising experts, they’re hiring technology firms to put into place, best practice, infrastructure, reporting and transparency. This relates to the first trend on transparency and governance but it’s much wider.

Being an institutional quality means having the right professionals on the team with the right experience and talent, having the right type of service partners which appear to be institutional quality and our institutional quality. And it’s really important that a fund manager nowadays promotes them self and has all the things in place that show tangible evidence of being an institutional quality firm on a proactive basis because everybody would like to have these things in place, but hardly anyone does. And so if you have these in place even before the investor asks for it or when the investor ask for something such as a compliance report, you have it and could send it within a half hour, that’s an institutional quality response and they can feel that and it will be obvious, whereas if you don’t have these things in place or can’t produce them that will also be obvious.

But it’s just a growing trend that the decision on whether an investor invests or not is more and more being based on this institutional quality factor than it is on track record or a team alone or a transparency in governance. Lots of it is really about the institutional quality of the firm. So I hope these 4 trends help you understand things that are developing in the industry, ways you can position your service provider firms, ways you could position your hedge fund or ways you could position yourself and your knowledge in the hedge fund industry.

So thank you for your time in joining us here today.

The hedge fund industry is constantly changing. I hope that this video has given you a good update of the top four hedge fund trends.

Your friends here at https://investmentcertifications.com

On August 16, 2011 By Richard Wilson

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Difference Between Absolute and Relative Returns

Knowing the difference between absolute and relative returns is fundamental to understanding how the hedge fund industry developed and the key benefit to investing in a hedge fund. In the following video, I explain the difference between absolute and relative returns and why this distinction is important.

Video Transcript/Summary: The strategies and tips provided within this video module include:

Before hedge funds, investors often suffered heavy losses by being only long on stocks during a market downswing.
Hedge funds allowed investors to insulate themselves to some degree from market shifts by hedging their long bets with shorts.
Hedge funds seek absolute returns instead of relative returns.
Absolute returns means that the hedge fund aims for an absolute return of x% every year irrespective of what happens in the stock market.
Relative return managers peg their performance to other fund managers or indices instead of an absolute return.
When you hear people talk about absolute return understand that they are shooting for a return no matter what their competitors or the stock market is doing.

Transcript of Difference Between Absolute and Relative Returns

Hello, this is Richard Wilson and today I’m going to explain to you the difference between Absolute Returns and Relative Returns. It’s a pretty fundamental concept to understanding how hedge funds work and how they came about. So I think it’s really important to understand this if you’re taking the CHP designation or just working on the hedge fund industry in general.

So to start with, the hedge fund industry started because people figured out that when the stock market goes down, they don’t want to be losing money by being long on stocks, by buying stock. They want to be able to short stocks, and use both long stocks and shorting stocks within the same portfolio. It’s kind of hedging your risk with shorting some stocks, and the portfolio is kind of where the term hedge fund came about from.

So having an absolute returns versus relative returns is really at the core of what the whole hedge fund industry is all about. Absolute returns means that for your investors and your hedge fund, if you’re an absolute return hedge fund, you’re trying to return let’s say 7% or more every single year. It doesn’t matter what the economy does, what the stock market does, you are trying to get that 7% return and you’re trying to do that by shorting stocks you think are weak or are going to go down in value or down in price. You can go in long on stocks that you believe, or buying stocks that you believe are going to do relatively well compared to the greater marketplace.

This way if a market goes down, you make money on your shorts. If the market goes up, you make money on the long that you’ve made, and you’re trying to get that 7% return no matter what happens in the marketplace. Relative return managers are really trying to beat the market. They might pin themselves against the S&P 500 and more likely against other hedge fund managers that run their type of strategy like long or short equity or global macro. But with a relative strategy, if the market goes down 20% and you only go down 10% then that’s the reason to celebrate because you’re trying to beat the market and you just lost half as much.

If the market, it goes up to 7% and you go up 15%, again, that’s another reason to celebrate if you’re a relative return manager in most cases, then that’s what you’re trying to do. Some of the issues they have come up lately have been whether there are that many absolute return managers out there. During the two recent financial crises, when the economy went down, the stock market went down drastically. The truth is even “absolute return managers” lost some money. Almost all of them did. Some of them are very proud to have only lost 4%, the market might have went down 15% or 25%. But the truth is how absolute return are these mangers if almost nobody had an absolute steady return.

So it’s really a degree. You can think about it as a relative sliding scale of how much they’re focused on relative returns versus absolute returns in the hedge fund. But for the certified hedge fund professional designation, if you’re working on the hedge fund industry, when you hear people talking about absolute returns, you have to know they’re shooting for a return no matter what the stock market is doing, where relative returns are based on how someone was doing relatively compared to the broader stock market.

So thank you for joining me for this video. I hope this helps explain absolute versus relative returns and I’ll speak with you again soon.

I hope that after watching this video you have a better understanding of the difference between absolute and relative returns and why it an important concept for hedge funds.

Your friends here at https://investmentcertifications.com

On August 12, 2011 By Richard Wilson

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Hedge Fund Marketing

I have worked many years in capital raising, sales and hedge fund marketing and I want to share some free advice on hedge fund marketing with you today. In the following video, I share with you a common piece of advice that is pretty obvious but overlooked, a not-so-obvious piece of advice and a strategy that you can use in your hedge fund marketing.

Video Transcript/Summary: The strategies and tips provided within this video module include:

Common knowledge is not anywhere near as valuable as specialized knowledge.
Focus on specialized knowledge more than general knowledge and you’ll see an increase in your productivity and marketing success.
There is no magic bullet that will instantly help you raise capital.
If you want to have what others don’t, you have to do what others won’t. Hedge fund marketing takes hard work. “Suffer now and live the rest of your life as a champion.”
Understand your hedge fund investor avatar to really target who you are marketing to. If you try to raise capital from all types of investors you will fail.

Transcript of the Hedge Fund Marketing Video

Welcome to this video on Hedge Fund Marketing. This is Richard Wilson and this is one of my favorite topics to do training and live workshops on because my passion is capital raising, marketing, sales, influence and persuasion, positioning, authority building and all of that relates directly to hedge fund marketing. So what I’m going to do with you today is share with you a common piece of advice that is somewhat obvious, a piece of advice that’s not obvious and then one strategy you can use in hedge fund marketing.
The one thing that’s obvious but most people don’t focus on enough in hedge marketing is the fact that common knowledge is not worth nearly as much as specialized knowledge. Common knowledge that’s not directly applied to something functional would be like memorizing pie out to 2,000 digits. That’s a general knowledge that’s not directly applicable to something valuable. A specialized knowledge would be if you read every book on marketing and you spoke and met with every hedge fund marketing expert in person and took notes and wrote up notes on everything those people said and combined those two pieces of knowledge, that would be very specialized knowledge and that would be worth a lot of money.
So folks on specialized knowledge as much as you can and stop reading the general newspapers, stop seeing the car crashes on general TV and start reading more books on marketing and sales and taking training programs on hedge fund marketing and you’ll really see a huge difference in your productivity and the results you get.
Now, here’s sometimes it’s not too obvious, is that most people when they start looking as hedge marketing, they’re looking for a magic strategy that’s going to raise them a lot of capital. There are lots of strategies. There’s a whole buffet of ideas you can use to raise capital but there is no magic bullet, there is no one strategy that exist that’s going to help you raise a lot of capital, so you just know that right off the bat. So I think most people look for that often and it just doesn’t exist.
Another quote I like to say often in my training programs is that “If you want to have what others don’t you must do what others won’t.” And I think that’s a quote from Brian Tracy who we actually just interview a few weeks ago, so you can listen to my interview with him within our training programs or on YouTube as well. And what this quote means is that if you want to be good at doing hedge fund marketing you should do the hard work that others won’t to be good at hedge fund marketing. You have to do the research, you’ve to meet in person with people, you have to follow up more often, you have to add more value to them first because most people are too lazy to do that.
Hedge fund marketing takes a lot of planning, hard work, and long-term strategy. But that’s a good and bad thing. The bad thing is it’s challenging. The good thing is there’s huge rewards if you can get good at hedge marketing whether you’re running your own hedge fund, working as a third-party marketer or a consultant of some type, or if you’re just working as a capital raiser within a large organization.
Another quote I’d like to bring up in my training program is by Muhammad Ali. Everyone says he’s the most talented person of all time. But really if you look at his life history, he really just trained himself more than anyone else around him. And he even says here in this quote, “I hated every minute of training, but I said, ‘Don’t quit. Suffer now and live the rest of your life as a champion.’” And the reason I say that here and read his quote is to show that even Muhammad Ali who was considered so insanely talented had to work very, very hard and you’re going to need to if you want to succeed in hedge fund marketing. It’s going to be easy.
Now, one concept I want to share with you today instead of just telling you things that are somewhat obvious or not obvious to you already is the concept of the Hedge Fund Investor Avatar. This is something that we cover for a full hour, hour and a half within our full day live workshops because it’s so important that you get this. And in fact everything else that we train and teach on, on hedge fund marketing lies on the foundation of knowing exactly who your hedge fund investor avatar is.
So what is an avatar? It has nothing to do with the recently popular movie. Avatar means that you have a very well-defined picture of who you’re marketing to, who that investor is you’re trying to reach out to and who you’re trying to raise capital from. If you try to raise capital from all types of investors, you’ll fail. If you don’t know the specific needs, challenges and fears of the investor you’re approaching, you will fail. Many times you can have a well-defined avatar and you can still fail because it is so challenging to raise capital so you need every trick in the book that’s compliance approved and legal to get it so that you can raise capital consistently because it is very hard to do even if you’re intelligent, hardworking and focused.
So what is a hedge fund investor avatar look like? Basically, let’s give an example to make this a little bit easier to understand. If you’re a $100M hedge fund you could be marketing yourself to family offices. You need to understand how family offices as ultra high-net-worth wealth managers operate, how they invest, who they typically invest in, what they expect of their investment managers that they work with and really understand everything about how that family office operates so you can add value to them first, communicate with them on a peer level and get them to invest in your hedge fund.
If you’re a $1M hedge fund or let’s say $10M hedge fund, you might focus on some mid-level to small wealth management firms that invest in hedge funds that are kind of up and coming. This is because wealth management firms that are small to medium size have lower due diligence requirements than very institutional investors who will never work with a $10M size hedge fund that just want to invest with you because you’re too small of an operation.
So if you’re approaching a wealth management firm you need to get inside their shoes and understand, you know have they been burned before by investing in small hedge fund managers? Are they scared of hedge fund managers who have offices based out of their house? Are they scared to invest in hedge fund managers that have no employees or no board of advisers? Do they expect you to have certain types of audit firms or service providers? You need to understand everything about that type of investor that you’re focusing on and then craft all of your marketing materials, everything you do, the types of e-mails you send, how often you call, whether you’re requested to meet in person, what fees are you charging, everything in your hedge fund business should be formed around those 1 or 2 investors that you’ve identified as your number one focus for growing your hedge fund.
Often times people say “Well, we’re approaching all types of investors.” That’s a losing strategy. You need to figure out where 60% or 80% of your assets are going to come from or where they have come from in the past and focus on that for your hedge fund investor avatar. This is really kind of an advanced strategy in hedge fund marketing that nobody really ever talks about in our industry. But it’s pretty common in the marketing industry to talk about doing this and I think more hedge fund managers need to be doing this. So I encourage you to look into this, practice it, identify who your investor avatar is and hopefully we will see you in person one day in one of our live training programs or workshops or within our certified hedge fund professional designation program.
This is Richard Wilson and keep in touch and we’ll talk to you soon.

Hedge fund marketing is tough work, that’s why I am providing you with these free resources to improve your hedge fund marketing strategies and raise more capital. I hope that you can take the lessons in this video to improve your hedge fund marketing.

Your friends here at https://investmentcertifications.com

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