Absolute Return and the hedge fund beat
Josh Friedlander is editor of Absolute Return, which covers the hedge fund industry. He previously served as online editor of AR Magazine, and research editor and senior writer of Absolute Return.
He joined HedgeFund Intelligence in 2005 from Investment Dealers’ Digest, a weekly magazine covering Wall Street, and had previously reported on Wall Street and the pension industry for Institutional Investor News.
Friedlander sits on the board of governors of the New York Financial Writers’ Association, the nation’s oldest organization devoted to business and financial journalism, where he served as president in 2009.
He holds a Bachelor of Arts degree in History from Connecticut College. In 2007, he was selected as one of the ‘30 under 30’ most promising young business journalists by Newsbios.com.
Friedlander recently spoke by email with Talking Biz News about Absolute Return and how it covers the hedge fund world. What follows is an edited transcript.
How was Absolute Return started back in 2003?
Absolute Return was the latest in a series of hedge fund publications launched by our parent company, HedgeFund Intelligence. HFI began with the launch of EuroHedge in 1998 and then expanded to AsiaHedge in 2000, InvestHedge (which covers allocators to hedge funds) in 2001, and then Absolute Return. Around the time of the Absolute Return release, Euromoney Institutional Investor bought HFI.
The founder of HFI, Iain Jenkins, had been the investment editor of Sunday Business and a European business correspondent for the Sunday Times. In forming HFI, he was both lucky and good. He started the business right after the fall of Long Term Capital Management, and one could hardly have expected hedge funds to increase in institutional credibility, but it was in retrospect the start of the modern era for hedge funds. Assets that numbered in the hundreds of millions of dollars exploded to more than $2.5 trillion within a decade.
Why was there a need for a publication devoted to covering the hedge fund business?
There was a definite void in the amount of information available to hedge fund industry participants. The industry’s growth was evident within financial circles, as hedge funds expanded from a niche group of money managers serving the ultra-wealthy, to firms that increasingly reflected the needs of institutional investors. At the end of 2002, the top 100 firms managed $310 billion in the U.S. amid little press coverage or familiarity.
What coverage there was centered on a small number of hedge fund superstars: Bruce Kovner, Dan Benton, Ken Griffin, Louis Bacon, Paul Tudor Jones, and George Soros were among the top U.S. managers at the time, and many were famous even outside of financial circles. In 2003, The New York Times, which then referred to hedge funds as “lightly regulated investments for the very affluent,” was busy discussing an emerging trend of “coming-out parties” connecting hedge funds and investors—what are now commonly known as “cap intro” events. Most of the mainstream press maintained an anthropological outsider’s voice and view when writing about hedge funds. Some still do, even though hedge funds are now enmeshed in financial markets.
It’s clear in hindsight that there was a need at the time for journalism that targeted the industry consistently with insight and that paid attention to even its mundane machinations, not merely the largest headline-grabbing personalities, profits and losses.
What are some of the difficulties in covering hedge funds?
They remain, for the most part, private businesses. Their performance is not typically available to the public, most of their investors remain private, and they often have little interest in talking to the press, regardless of whether they have done well or poorly. There are clearly a number of hedge fund managers, most notably activist investors, who deliberately use the media as a tool, but most firms do not actively seek press attention, or welcome it.
In that sense, most of the stories we write are based on a high-level of source development. One misconception I encounter is that hedge funds call us up and give us stories. Given the amount of work we have to do, I vacillate between finding that assumption amusing or infuriating.
My experience is that hedge fund managers don’t like to talk to the media. Is that a fair assessment?
Yes. Some managers are very public, usually because it serves their investments, but most do not want to say anything about how their business works. Interestingly, that doesn’t mean they don’t retain public relations firms, but they appear to do so as a defensive measure, or in case they decide to engage with the press someday.
After the JOBS Act passed and there was much talk of hedge funds becoming more public in their sales and marketing efforts, we conducted our first survey of hedge fund public relations firm relationships. We were curious and we also thought the information might be of use to our readers.
Surprisingly, 36 percent of the largest firms in the U.S. (those with $1 billion or more in assets) employed PR firms in 2012, and those firms controlled 52 percent of the Billion Dollar Club’s assets. Last year, we updated the survey and representation had jumped to 45 percent of Billion Dollar Club firms and these controlled 61 percent of the Club’s assets.
Does that mean hedge funds have opened up? Yes, but not much. Firms that actively reach out to form a relationship are typically smaller. The majority of hedge funds remain circumspect about engaging with the public.
I should put a big asterisk on this response, though, because Absolute Return isn’t “the media.” We’ve been dedicated to covering hedge funds for our entire existence and we don’t approach each story as an opportunity to shed light on an opaque industry. To us, the industry isn’t opaque, and we’ve had relationships with many of these firms, as HFI, for longer than 15 years. That doesn’t mean they just come out and tell us what they’re doing—far from it—but we have very strong working relationships that we can use to ensure our reporting is accurate and comprehensive.
How did the publication decide to go online only in 2012?
Only?! Our last print issue appeared in September 2012. Newsweek waited until the end of the year. Lloyd’s List, the world’s longest-running newspaper, stopped printing in 2013. Arthur Sulzberger said in 2010 that The New York Times will stop printing, but I don’t believe he’s given a date. PCWorld exited print in 2013. Wired still offers a print edition. I think we made the right decision for numerous reasons specific to our industry and subscribers, but we also seem to have been slightly ahead of the curve.
We had an easier decision than most, as we’ve always focused on subscriptions revenue. It has been my experience so far that the benefits of being digital have far outweighed the loss of print. To begin with, you can reallocate an enormous amount of staff time and capital that goes into the process of print publication, including the re-re-editing of pieces written earlier in the month that need to be updated, the need for extensive artwork, and the pressure of filling a set layout. In our case, we probably spent seven of 20 working days a month engaged in a process that had almost nothing to do with providing more information to subscribers. The reasoning that weighed heaviest on us wasn’t the loss of print advertising revenue, but whether we could serve subscribers as well by being entirely digital, and we decided we could serve them better.
Obviously, being online means we can be as timely as possible, and that was a definite plus. More critically, being digital means that every item of information we have can be meaningfully and easily connected to our database of performance statistics, archive of past articles, and extensive library of industry research, including asset figures, new products, vendor relationships, and related rankings. Printing stories about a fast-evolving industry is nice, but without the ability to link information, the subscriber’s ability to act on those stories is substantially reduced. For feature-oriented publications, I think the decision to cut print is harder, because there is a lot of value in offering an artfully produced magazine. Given our consideration of the utility our stories offer subscribers, giving them the ability to manipulate information online is clearly superior to a static print product.
What are your impressions of the mainstream business media’s coverage of hedge funds?
There are a number of reporters, including alumni of Absolute Return, who are doing an excellent job covering the industry. The focus is different. We’re involved in every aspect of the industry, from minutiae to trends, while the mainstream press is, naturally, interested primarily in the loudest and most topical stories.
Is there anyone out there who does a good job that you consider a competitor?
On any individual story at any time, I’d say that almost everyone is a competitor. Among the best are Bloomberg, The Wall Street Journal, CNBC and the The New York Times. But I consider winning at the “big scoop” game to be a minor part of our value proposition. It’s fun, but our value to subscribers is in systematic and meticulous coverage of the information where we can be most useful: performance, new products, people moves, rankings, objective research and analysis. We have fundamentally different goals than the mainstream press.
Who are your readers, and what are you trying to provide to them?
They include the wealthiest and most sophisticated individual investors, large institutions (pensions, foundations and endowments, sovereign wealth funds), hedge funds of all kinds, funds of hedge funds, and a variety of service providers to the industry.
We’re trying to provide them with information essential and productive to their participation in the industry. I think about this information occupying three categories: peer view, such as hedge funds and service providers benchmarking themselves against each other; due diligence, most frequently in the form of investors doing research into particular hedge funds and strategies; and sales prospecting, which in the case of Absolute Return most obviously involves service providers to hedge funds using our information to inform their sales process (in the case of our sister publication, InvestHedge, the buy/sell connection involves hedge funds learning about which investors are allocating capital).
In practice, the way we think about coverage doesn’t differ enormously from what the mainstream press would do in terms of source development, scouting for tips, and the like. One way in which we differ is that when we’re writing about someone leaving a hedge fund, for instance, we’re also concerned with the entire ecosystem of investors and vendors affected by the event. I’m quite touchy about the notion that we are an “industry rag,” because if you think about the world the way we do, it’s clear that we spend a lot of time thinking about everyone in the process, and especially the investors. We consider the whole ecosystem, not just the funds. The better we do our jobs, the more information we can give to the pension funds investing on behalf of retirees. Personally, those are the readers that I think about when I’m working on a story.
How big is your staff, and what are they doing on a daily basis?
There are typically five of us working on Absolute Return: one editor, two reporters and two researchers who gather data and conduct analysis for our stories, research and rankings. There’s an overall larger staff in London and Hong Kong of journalists and data/research staff on EuroHedge, AsiaHedge and InvestHedge.
We believe in building analyses from the ground up (rather than taking a notion and backing it up with so-called expert opinions and anecdotes), so we spend an enormous amount of time on primary research: gathering performance information, meeting with investors and service providers, and hedge funds.
On a daily basis, reporters meet with sources and write their stories, while the researchers work on compiling the information to produce our many rankings and research reports. The teams work together constantly, though, as the reporting we do feeds our research, and vice versa.
What qualities in a journalist are you looking for when you hire?
The ability to build relationships with sources is critical, and requires the reporter to remain uncowed in facing off against Wall Street’s biggest alphas. This usually requires a good intellect, not merely to understand the nuances of the strategies executed by hedge funds, but in order to keep up with some smart people.
It is critical that our reporters have a painstaking concern for accuracy. A lot of journalism involves telling people something new about an area with which they are only somewhat familiar, so they probably won’t know if you get a few details wrong. That won’t work for us. We have to be accurate, because a lot of the people we’re writing about know each other and have an extensive understanding of their own industry. They can dismiss our credibility in an instant when we screw up.
I’m not at all worried about upsetting people when there is upsetting news, but I’m fearful every day of being wrong in our facts. I suppose all journalists must feel this way, but it’s especially humbling to know that our readers, who are paying a substantial amount for the information we provide, control trillions of dollars of investable assets. They’ll know when we’re wrong or don’t fully understand what we’re writing about.
What areas of coverage would you like to improve?
The hedge fund industry is now in an expansionary phase. We need to be on top of new products to a greater degree than in previous years. We also need to pay greater attention to new modes of distribution, including retail products that could move the hedge fund industry from its evolving focus from the wealthy and then on large institutions to one that targets everyone. If hedge funds really do become retail-oriented, our editorial focus will have to shift.