Alternative Marketing for Alternative Investments

Abstract

Until recently, hedge funds could advertise only indirectly, because direct solicitation was banned. We analyze the causes and effects of indirect advertising by relating the ads for hedge funds’ parent institutions and sibling mutual funds back to the hedge funds’ circumstances, and forward to their flows and performance. We find that abnormally low net inflows predicts the ads, which in turn leads to increased future net inflows, indicating that ads boost sagging flows. We also find that the incidence of large losses increases after ads. Thus, we conclude that indirect advertising is effective but poses some risk to consumers.