Agecroft Partners estimates 90% of hedge funds using social media
The use of social media has increased significantly within the hedge fund industry over the past couple of years. Social media is broadly used by investors as part of their due diligence process on hedge funds, by service providers in their sales efforts to hedge funds, and by hedge funds to enhance their marketing strategy, investment research, and the overall quality of their firm. The purpose of this paper is not to give legal advice, but to focus on trends that my firm, Agecroft Partners, is seeing regarding the increased use of social media by hedge funds to enhance their marketing campaigns. By far and away the most used social media within the hedge fund industry is LinkedIn which we estimate is used by employees at approximately 90% of hedge funds with assets above $100 million. In second place, with significantly less use, is Twitter. There is very little business utilization of other social media mediums at this time. I will touch on both LinkedIn and Twitter below.
LinkedIn uses in hedge fund marketing:
Enhances knowledge of Investors. The hedge fund investor universe is very opaque, where there is very little information about investors, because most hedge fund investors either do not have a website or their website is password protected. LinkedIn is a great resource to view many hedge fund investors’ profiles which typically includes a picture, their work history and job description, any boards on which they participate, and their educational background. Information on individuals varies, but the trend over time is for individuals is to add more detail to their profile. This is valuable information to improve business relationships. It also can be helpful in doing research before attending an industry conference to better understand who is attending.
LinkedIn can also be used to better understand an organization. For example, profiles of other employees of the firm and their roles are displayed. This was recently highlighted in Michael Lewis’ book “Flash Boys”. The more connections an individual has plus connecting with other individuals with a large amount of connections, enhances the functionality of LinkedIn because a person can only see detailed information about their 1st, 2nd and 3rd degree connections. Having a lot of connections can also be helpful because at large organizations, with many component parts, the hedge fund research staff will typically be those contacts within the organization with the most connections in common with a hedge fund representative.
Improve probably of getting meetings with investors. The viewing of LinkedIn profiles goes both ways because investors are increasingly using LinkedIn to help screen with whom they meet. The more professional someone’s LinkedIn profile looks, the higher the probability of an investor wanting to meet with them. In building out a LinkedIn profile it is important to understand that this often will create people’s first impression of an individual. Time and effort should be put into creating a profile that best describes an individual. People should check with their compliance department for guidance on what they can include; however many firms are comfortable with including any information that is also included on their company website and other organizations are comfortable with including information on the firm’s ADV which is available to the public through the SEC’s website.
Identify who are institutional Investors in Hedge Funds. Identifying institutional investors that invest in hedge funds can be achieved by doing advanced searches on LinkedIn based on a geographical area and then a search word like “hedge fund”, “alternative investment”, “family office”, “endowment” and “foundation”. This is then followed up by contacting the organization and asking who is responsible for analyzing hedge funds at their firm. Once this information is obtained, a pre-existing relationship can begin by having a conversation with the individual about the hedge fund industry, hedge fund investing trends within the investors geographic area and what type of hedge fund strategies they prefer, without communicating any information about a specific hedge fund.
Connecting with industry contacts. Connecting with industry contacts helps an individual strengthen their “brand” in the market place and also improves relationships with each person with whom they are connected, because each of their connections will be reminded of them every time they view their list of connections. Connections also see each other’s postings which will keep you updated on their current interests. Connecting with individuals requires both parties to agree to connect and the probability of the invitee agreeing is a function of how well you know them, the quality of your profile, how many connections you have in common and your reputation in the industry.
Enhancing knowledge of the hedge fund industry by participating in LinkedIn groups. LinkedIn has hundreds of hedge fund industry groups people can join which include groups focusing on hedge fund administration, compliance, legal, sales, in addition to investor groups focusing on pension funds, endowments, fund of funds, family offices among many others. Each of these groups allow members to post information they believe the group will find useful, ask the group questions, post surveys and job postings. These groups are designed to allow members to enhance their knowledge of specific areas within the industry by sharing their knowledge through posts to the group or commenting on group members’ posts. Members of the group also see a list of other group members which allows them to reach out to each other directly.
Posting information Posting information in LinkedIn can either enhance or hurt an individual’s reputation in the industry. When posting information, an individual is given choices of where they would like the information to seen. This includes selecting which groups the individual belongs to that will receive the post. All members of the group will receive the posting if the group is selected. An individual can also choose to send it to all of their connections or to select individuals. An individual can enhance their reputation by posting information people view as useful and informative. They can hurt their reputation by posting information too frequently or viewed as spam. If a group determines that information is being posted that is not relevant to the group they may ban the individual from future posting.
Unless a hedge fund has registered to participate in general solicitation under the JOBS ACT, they should check with legal and compliance before posting anything relative to their firm or fund. What many people in the industry post is information relative to the capital markets, federal reserve, economic view, regulation, and trends in the hedge fund industry.
Sending direct messages to individuals. Based on a person’s membership level, direct messages can be sent to a limited number of individuals each month that are not direct connections, which are received as emails. There is no limit to the number of messages that can be sent to 1st connections. All of these messages should be backed up on a service like Smarsh for anyone employed with a registered firm.
Following people’s careers The hedge fund industry experiences significant turnover each year among people who analyze hedge funds. A large percent of these individuals end up in other hedge fund positions. There are two ways LinkedIn can help keep track of peoples career changes. The first is to do a name search in LinkedIn whenever an email is returned as not deliverable. Many people will update their profile fairly quickly after excepting a new position. This information can then be updated in the firms CRM system. The second way is by receiving updates from LinkedIn whenever a 1st connection makes a job change.
Use of Twitter in hedge fund marketing. Twitter is used by a small fraction of the hedge fund industry for business purposes compared to LinkedIn. With LinkedIn both parties have to agree to connect, however with Twitter an individual usually can follow anyone they want and vice versa. A small percent of people have protected accounts that require approval to follow. There is also a function that allows people to block certain individuals from following an them.
When someone tweets information the only people who see it are either their followers or people who come across the tweet by searching for tweets relative to a specific subject or word. Twitter is use by people/companies to enhance their knowledge of the hedge fund industry and to strengthen their reputation in the industry. For example many of the top hedge fund publications and hedge fund reporters are actively followed by people on Twitter.
Twitter is not as targeted to the hedge fund industry as LinkedIn. In Twitter it is very common for random people to follow individuals with the expectations that you will follow them back. These people are trying to increase their credibility in the Twitter community, which is achieved through a combination of how many followers a person has, the quality of followers (people can purchase large numbers of followers) and the quality of their tweeting activity. This last component is impacted by the quantity and quality of tweets. Unless a hedge fund has registered to participate in general solicitation under the JOBS ACT, they should check with legal and compliance before posting anything relative to their firm or fund.
In summary, social media is a powerful tool that is constantly evolving. This paper gives a very cursory overview of trends in how hedge funds are utilizing social media in their marketing efforts. However we are just touching the surface of its application throughout the alternative investment industry. Social media is a powerful tool that is constantly evolving and every participant in the alternative investment industry should broaden their knowledge of its uses, but at the same time understand how it can be utilized based on the regulatory framework of their firm.