Here is a guest article on public relations for hedge fund managers:

Why do hedge funds need to hire public relations experts to help protect and grow their fund?

Presently, most new hedge funds are launched with money from friends and family, while more established players can launch new funds from a pool of existing investors. As mentioned previously, hedge funds are prohibited from advertising and marketing. (Once contacted by a potential investor, a hedge fund can send out marketing material.) Thus, in order to attract new investors, hedge funds need to find a way to get their name out there. One way, of course, is through the media.

Most financial journalists have contact with a hedge fund manager or two. These managers are excellent sources of information, though much of it is negatively directed towards companies. As such, much of the back-and-forth between the media and hedge fund managers is off the record. The SEC’s new rules, however, are aimed at transparency, and with competition among hedge funds fierce, it certainly behooves hedge fund managers to use their investment expertise to help the public, and drum up investors in the process.

I spoke to a number of hedge fund managers recently who, for the most part, agreed that the sole purpose a hedge fund may engage a public relations firm is in an effort to market to new investors. I also spoke to Richard Dukas, the president of New York-based Dukas Public Relations, a PR firm that has handled hedge fund clients in the past and counts a handful of funds as current clients.

“Most hedge fund managers are still extremely reticent when it comes to speaking to the media,” Dukas said. “What I’ve found is that it’s very difficult to solicit managers to work with you.”

Dukas says that the reticence comes from a feeling that hedge fund managers should be secretive and not share their ideas with anyone but their own investors. However, the new SEC regulations, combined with the movement towards activist investing, may change that.

“Maybe [hedge fund managers will realize] that what they’re doing is not so secretive after all,” Dukas said.

For an example of a hedge fund that has embraced the concept of working with the media, look no further than Dukas’ client Haven Advisors, which has racked up considerable press over the past six months. 

I mentioned that competition among hedge fund managers is fierce, and it’s not going to get easier. For example, Janus Capital, one of the world’s largest mutual fund mangers, recently launched a long-short mutual fund with the goal of absolute return. In other words, Janus is offering investors access to a mutual fund that acts in the same way that most hedge funds act, but without the stiff management fees. More mutual funds such as the one launched by Janus should hit the market this year, opening up a whole new pool of investors to the idea of hedge funds. The biggest reason, however, I feel that hedge fund managers need PR people is the rise of activist investing.

Activist investing is not new, but for whatever reason, hedge funds ratcheted up what we call “cage rattling” last year. The norm goes something like this: 1) A hedge fund builds up a large stake in a company by buying stock on the open market because the fund feels the stock is undervalued; 2) The fund approaches management and the board of the company and offers suggestions about how to “unlock” the value of the stock; 3) Management and the board ignore the fund, though in a non-combative way; and, 4) The hedge fund gets tired of being jerked away, and publicizes its “cage rattling” through an SEC filing (usually attaching letters that it has sent the company’s management and board).

In some cases, companies capitulate, mostly because other investors have latched onto the ideas put forth by hedge funds and begun demanding change. In other cases, companies will battle hedge funds, hoping to eventually shake them out as investors. Regardless of the eventual outcome, hedge funds need public relations people because companies inherently have a public relations machine built into their organization. While hedge fund managers complain in SEC filings and on conference calls, companies are utilizing their public relations resources to work the media and investors. One good example of the company-versus-fund public relations mentality is Time Warner.

Last year, billionaire corporate raider Carl Icahn built a more than three percent stake in Time Warner. In doing so, Icahn began demanding a number of changes, including a massive stock buyback and a better monetization of Time Warner’s AOL asset. Time Warner gave in partly, announcing a $12.5 billion stock repurchase. (FYI, stock repurchases help companies boost earnings by giving existing shareholders more equity for their shares; i.e., existing shares become more valuable because there are less shares outstanding when the company buys back stock.) Time Warner, however, didn’t do everything that Icahn asked.

When Time Warner announced a wide-ranging pact with Google, Icahn was seemingly furious, warning the company ahead of the deal that it was making a mistake. Time Warner, with its PR machine in full gear, basically blew off Icahn, who was working the media in his own way. The end result was a deal that Time Warner wanted and was generally hailed for, and a deal that Icahn apparently hates. At last check, Icahn was having difficultly finding potential candidates for a reconstituted board that he wants to install at Time Warner. Negative PR towards Icahn, no doubt, has contributed to this difficulty.

Attracting hedge fund clients is certainly not easy, but I believe a persuasive case can be made that hedge funds need to begin exploring spending some money on PR. The best pitch is a simple one: You want to make money, and we can help you do it. That’s a proposition even the most secretive hedge fund manager should listen to.