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  • Writer's pictureGordon G. Andrew

Why Social Media is WRONG for Asset Managers

The latest round of blather regarding why and how asset managers (in this case, hedge funds) should use social media can be found in this month’s publication of a research study conducted by the respected marketing firm, Peppercomm.

Entitled “Everyone’s Tweeting About Hedge Funds, Except for Hedge Funds,” here are some of that study’s “key findings” and recommendations (…complete with my sidebar commentary):

  • Mentions of hedge funds on social media in 2015 were up 46% over the prior year (… and I’m at a loss to understand why this information has any value.)

  • “Despite this uptick…” (the study noted), only 11% of the 314 largest hedge funds had a social media presence in 2015, representing less than a 10% annual increase (…and I’m at a loss to understand why there should be any correlation between mentions of hedge funds in social media, and hedge fund use of social media.)

  • The study’s social media usage growth figure excluded hedge fund participation (at 73%) in LinkedIn (…and I do understand why: because this would have changed the study’s conclusion.)

  • Hedge funds need to get with the program and start using social media because, according to Peppercomm (…and I quote them here, verbatim):

"Every time hedge funds shy away from the social media conversation, they throw away important thought leadership and content opportunities for themselves and for the industry."

Apparently, there is now a “butterfly effect” in marketing, where an individual hedge fund’s failure to use social media can handicap the entire asset class. On behalf of semi-rational marketing professionals everywhere, I apologize to the global hedge fund community for unhelpful “market research” like this.

Other than sketchy research, there are at least three additional reasons why hedge funds, as well as a boat-load of other asset classes, should NOT be using social media:

Reason #1: There are marketing essentials, far more important than social media, that you are failing to do well.

Here’s a quick diagnostic of your fund’s marketing sophistication, based on a very short list of marketing essentials that are far more critical to asset growth than social media, and that MENSA-level hedge fund quants, who can speak in equations, often have difficulty understanding:

  • Brand and Marketing Strategy: If you don’t have a written Marketing Plan, you’ve already flunked this part of the quiz.

  • Website: This is the mother ship of your brand. Lots of funds have websites, but very few of those sites provide meaningful insights into the firm, or deliver compelling reasons for investors to learn more about them.

  • Sales Collateral: Investors and allocators wince in pain when they hear the word “pitch deck.” Most pitch decks are incomprehensible.

  • Sales Process: If you think this means endlessly sending out emails and making phone calls, you’ve flunked this part of the quiz as well.

Reason #2: Your compliance guy is correct. The risks of social media really do outweigh their benefits.

Given the regulatory environment, compete with its fuzzy marketing rules and government agencies looking for any reason to put “Wall Street types” behind bars, social media represents an accident waiting to happen.

For disaster to strike, all it takes is a summer college intern, who wants to be helpful by posting or tweeting an item or comment that hasn’t been cleared, or that gets garbled while he’s also texting a friend to meet him for lunch. And the intern (or full-time marketing associate) will not be entirely to blame, because most funds that attempt social media won’t have formal content standards, a tight approval process, or monitored implementation. It’s a lot of work, and few funds have the experience or the resources to managing social media properly.

Reason #3: You should never drag a reluctant bride to the altar. It doesn’t end well.

Hedge funds avoid social media for a variety of stated and unspoken reasons. For example: They don’t understand how it can drive asset growth. Or they don’t want to be bothered by the operational disruption it might cause. They think it might diminish the opaque communication on which the cachet of hedge funds is founded. Or they think the sales and marketing function is beneath their station.

All of the combined reasons, rational or dumb, for why hedge funds don’t use social media may best be summarized in this way: as an “industry,” alternatives are simply not ready to use the tactic. Most hedge funds know their limitations, and are correct to resist something they don’t understand or believe in.

The validation for this theory is found in the large scale hedge fund adoption (73%) of LinkedIn. Funds may currently be passive LinkedIn users – supplying only their profile information, and avoiding any posting of content or user groups comments – but their very presence demonstrates that they are willing to use social media platforms when it makes sense to them, and when they think the risks are manageable.

All of the research studies, and hair-on-fire forecasts of missed “thought leadership” opportunities, will never change the collective mindset or marketing velocity of asset managers who are hard-wired to be methodical and slow-moving. In fact, like supporters of Donald Trump, marketers’ excoriations and rational evidence in support of social media may even drive left-brain financial managers to a more well-entrenched position, ensuring that they will never dip their toes into the pool.

Conversely, by teaching fund managers to walk before encouraging them to run – in terms of marketing tactics – and by helping to deliver tangible business outcomes (not social media “likes” and “shares”), marketers will earn their trust and respect. At that point, fund managers rather than marketers will drive the interest and discussion regarding ways that social media can help them.

Until then, marketers need to back off hedge funds with respect to social media.

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