In the 21st Century, it is a given that if you do not have an internet presence (website, LinkedIn, etc), you simply don’t exist. Nowadays, even corner lemonade stands run by grade school kids seem to have a website or at least a presence on social media.
However, there is one notable exception: Hedge funds.
Most hedge funds do not have a strong internet presence if any at all. When they do, even top multi-billion hedge funds like Renaissance Technologies, with over $110 B in Assets Under Management, have very simple websites that look like they were built in 1995.
Their LinkedIn page is even worse. It has no logo and no content and their description is literally this: “——————————“.
Furthermore, many hedge funds employ savvy firms to do the opposite they do with most clients: keep their name away from the spotlight. Many hedge funds ask their employees to not publicly state online where they work.
So what’s going on? Why does your corner mom and pop shop have a stronger internet presence than a multi-billion dollar company? Why do so many hedge funds act as if they were secret intelligence operations?
There are six main reasons:
1. Legal: Up until 2013, it was actually illegal in the United States for hedge funds to have any sort of effective website as they were barred from advertising and engaging in “general solicitation”. This was a rule designed to protect smaller investors from investing in expensive, complex and not very transparent instruments like hedge funds. Even if that rule has now been somewhat relaxed, the industry has gotten used to not having a strong online presence, and many funds are unlikely to change as that could welcome potential unwanted legal scrutiny.
2. Clients: In order to be legally allowed to invest in a hedge fund you must be an accredited investor (currently defined by rule 501 of Regulation D as having an income of over $200k and a net worth of +$1M) to even be considered, and most hedge funds have much higher wealth requirements, as well as very high minimum initial investment amounts. Many hedge funds understand that an online presence is unlikely to influence these sorts of clients to make such important investment decisions. Rather, hedge funds use their network to personally reach out to potential qualified investors.
3. Exclusivity: Just like the secret hipster bars and restaurants hidden behind nondescript doors in industrial buildings are all the rage, in the 21st century, it seems like not being online confers an aura of secrecy and exclusivity. It’s almost like a reverse psychology exercise: “We don’t need your money so we don’t advertise”. This can be very powerful to lure high net worth individuals. For example, Bernie Madoff’s Ponzi scheme grew exponentially because, in part, his fund’s extremely low profile and secrecy made it seem like a highly coveted and prized opportunity among the world’s wealthiest).
4. Need: Unless you’re a new fund or your capital rising through traditional routes is not working, there is actually very little need to have any sort of public presence. Your fund may be fully subscribed or you may not be looking for more capital. And if you do, chances are your own network’s word-of-mouth may be enough to get the few extra investors you need. It might simply make no sense to spend money on developing an internet presence, and then dealing with the resulting unsolicited attention or requests from unqualified wannabe investors.
5. Regulation: Hedge funds are loosely-regulated private partnerships and are not required to report their performance to any centralized database. Funds will usually only publicize their performance to prospective investors and marketing databases if they are looking to attract new investors. While there are some private hedge fund databases that try to gather performance data, the reality is that they are very incomplete as they rely on voluntary reporting. Furthermore, if the fund owns less than $100MM in regulatory assets, they do not even need to file any SEC forms, making the fund virtually non-existent not only in the eyes of the public, but also for regulators and government agencies. This is exacerbated when the fund is not even registered in the US (many opt for jurisdictions with even laxer regulations like Bermuda, the Cayman Islands, Hong Kong, Luxembourg, Singapore etc).
6. Privacy: One of the aspects that HNW individuals value the most is privacy. If the fund they’re investing in were to, for example, publish their performance or detailed investment philosophy online, some clients could be concerned that certain parties (government, journalists, competitors, etc) could use that information against them. The same goes for hedge fund workers. The preferential tax treatment for carried interest is also politically controversial, adding to the desire to avoid the spotlight.
So, all in all, if you look for a hedge fund on Google or LinkedIn and expect to find a lot of information, you will probably be disappointed. Anyone can build beautiful websites nowadays. Maybe those who choose not to is because they can afford to do so.