Wednesday, August 13, 2008
When Communication Becomes Promotion by Anthony Payne, Peregrine Communications A couple of months ago I wrote a column called “The Danger of ‘No Comment.’” I argued, briefly, that hedge fund managers’ aversion to press coverage – dealing with the media with a metaphorical “no comment,” in other words – meant the industry’s point of view wasn’t getting across and its image was being refracted through the words of sometimes biased, often misinformed commentators. The result has been the public perception of hedge funds as risky, secretive and of real value only to their managers, all of whom are paid truckloads of money for doing very little. The perception may be unfair, but while it remains unchallenged it can have real consequences, with new restrictions, rules and controls on hedge funds being some of them. The solution, I wrote, was to deal meaningfully with the press – offering comment, analysis and rationalization so that the media has a chance to reflect the hedge fund industry’s point of view. The article generated a fair bit of response, much of it along the lines of, “I agree with what you say, but....” The biggest “but” was the risk of running afoul of the regulators – and specifically the U.S. Securities and Exchange Commission. This was, of course, of concern principally to U.S. readers. The regulations in the United Kingdom and in Europe are different. But in the United States, as one manager wrote in an email to me, failure to take into account the regulators’ attitudes at a specific time can put at risk “our livelihoods, our careers and our clients and partnerships”. This is clearly a major concern, made worse by the fact that the regulations in the United States are opaque and broad, subject to interpretation, reinterpretation and misinterpretation. In principle, hedge funds in America are prohibited from advertising or marketing to the general public. While the meaning of general public is fairly straightforward, what constitutes advertising and marketing is unclear. Is a web site advertising? Is speaking to the press marketing? At the paranoid end of the U.S. hedge fund industry, lawyers have counselled not talking, at all, to anyone.
The good news is that things may be about to change (thought to be fair, probably not immediately). In April, the industry’s lobby group, the Managed Funds Association, sent a letter to SEC Chairman Christopher Cox asking regulators to loosen up the rules. The MFA said it wanted to be able to disclose information “which could not be construed as a general solution.” It was, it said, “trying to find a way to be more transparent.” At the same time, Phillip Goldstein, the fund manager best known for bringing a landmark lawsuit that rolled back U.S. regulator’s attempts to register hedge funds, has taken up the cause. He wants to post basic information on how his funds are performing, how they make their money and who works on them on the firm’s web site. He says the present rules infringe on his freedom of speech, and has hinted he may file a lawsuit to push the issue – a threat the SEC might like to have a think about. It is unfortunate that the result of these regulations has been to perpetuate the hedge fund industry’s reputation for being secretive, suspicious and uncommunicative. It’s certainly true that the regulators are partly to blame for this. But it’s equally true that many funds take refuge behind these regulations, blaming their lack of a coherent media program on the very narrow sort of legal advice that equates all communications activity, from maintaining a basic web site to responding to reporters’ questions, to marketing or advertising. It isn’t like that. Giving a quote to the press, explaining what hedge funds do, even explaining your strategy, is not advertising and is not marketing. It is part of a legitimate communications plan, of the sort all modern corporations have. Hedge fund businesses are increasingly mainstream businesses; it is time to act accordingly. Anthony Payne is the founding partner of Peregrine Communications, a London-based financial public relations group.