Posts for Tag: Language Analysis

What to Call Your Fund

I wrote this for CFA Institute while I was choosing my own legal name. It was first published on the Enterprising Investor.

Very few successful entrepreneurs dismiss the role luck played in their careers.

But can luck be multiplied through language? In the United States, stocks with ticker symbols that begin earlier in the alphabet are 5-15% more liquid than those toward the end.

Picking a name for your firm that is both pronounceable and memorable would seem to play some role in the overall success of your effort. After all, you are unlikely to be the only game in town.

There are a lot of firms already out there:

Are performance and client alignment enough to stand out? The raw numbers suggest an opportunity to create value through a well-constructed branding strategy.

Or you could just use your initials.

Simple Formulae

An amusing name generator for hedge funds produces remarkably good suggestions despite its unsophisticated proprietary methodology. Judging from the “about” page, the widget seems to revolve around the question, “Have you ever realized that many hedge fund (and private equity) firms have chosen a name following a common ‘color’ + ‘element’ pattern?”

That certainly describes BlackRock, the world’s largest asset manager in 2017, and likely quite a few more. A glance at the most popular names created by the generator reveals “OakTree Capital” and “BlackStone Partners.” Hopefully those sound familiar to more than a few aspiring entrepreneurs.

But I wasn’t kidding about ignoring the problem and just using your initials. The top 100 hedge fund firms as ranked by Institutional Investor’s Alpha contains entries beginning with MKP, HBK, and GSO, each of which represents one or more initials of the founders. Talk about a personal brand. Pioneering firms from A.W. Jones & Co. to D.E. Shaw & Co. didn’t even bother to summarize.

Economist Douglas A. Galbi writes, “Choosing a good name involves assessing the social valuation of a name,” which might suggest a certain self-regard among those who put their initials on the enterprise. But given the lean nature of many investment firms, it’s worth mentioning that an eponymous moniker could double as an employee directory, as least at the beginning.

Deliberate Strategy

Sometimes describing who is at the helm of a fund will tell investors enough about what sort of strategy it is employing. But those times are infrequent. Accordingly, some firms will choose a moniker that sorts them into a desirable box. Putting a strategy like “global macro” right into a fund’s title is an easy way to do that.

Edward Bishop Smith convincingly argues that “investors interpret market information through the lens that identity offers,” and the strategic implications of his work are provocative. Fund firms judged to be “atypical” receive proportionally greater flows after a period of good performance, and are less severely punished for periods of negative performance. In his findings, allocators report that “typical” funds can be more easily replaced mechanically — in terms of greater competition — but also emotionally.

It costs both money and time to commit to holding an unusual asset, and once you’ve done it, the supposition is that your mind is made up for a while. But a fund manager might wonder if that support will endure in a time of widespread stress. A separate paper by Smith suggests a strategy for reinforcing earned goodwill: name your unusual fund after one of the usual categories.

But what if that’s not enough? A well-known branding approach in fund management is to add a dose of gravitas to a fund’s name, and a more recent study by Juha Joenväärä and Cristian Ioan Tiu shows the addition works, at least for some. Such impressively named funds attract more assets to the firm, but perform worse for their clients.

James Saft notes this is a reminder that “Like certain great first-growth wines, more gravitas, or indeed investment skill, is bought than exists.”

Perform without Conforming

I hope you’re convinced that whatever you call your fund, it’s not the most important variable in its success. Melvin Capital attracted some snark when it launched in 2014, but was a top performer the following year. Presumably, the fund’s performance mattered much more than founder Gabe Plotkin’s decision to name it after his grandfather.

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