Hedge funds’ PR problem 15 years after The Big Short – and why it needs fixing

By William Brook

Estimated read time: 6 minutes  

Fifteen years after The Big Short, hedge funds still contend with a tough a PR problem. Often misunderstood, they remain portrayed as villains of finance. Yet, beyond shorting, they drive positive change. This blog explores why perception matters and how hedge funds’ strategic communications can help hedge funds reclaim their narrative. 

This month marks 15 years since ‘The Big Short: Inside the Doomsday Machine’ hit the shelves. The book – which five years later was adapted into a star-studded and critically acclaimed movie – chronicles the events that led to the 2008 global financial crash. It depicts hedge funds’ investment morals in a somewhat shady light, and it is high time these largely misunderstood firms reclaimed their public image. 

The story details how a handful of traders and investors identified the housing bubble and bet against the market, netting billions in the process. For many, it serves as the primary reference point for understanding why the credit crunch unfolded. It also dictates how most people view hedge funds. To those who don’t work on Wall Street or in the City, they are largely seen as seedy organisations that profit from others’ misfortunes – and do so significantly. Subsequent films like Dumb Money have done little but cement this perception, and the effects of this may be starting to manifest.  

The recent FT story that retail traders in Europe have piled into ‘shorted’ defence companies – a tactic whereby hedge funds make a bet that a stock will fall – may be a sign of growing revolt against the way these firms do business. It echoes the ‘GameStop saga’ depicted in Dumb Money, when a wave of retail traders banded together on reddit forums to buy up shares of heavily shorted GameStop, causing its price to skyrocket and forcing hedge funds that had shorted the stock to take massive losses. 

If hedge funds are to change their perception, and curb these attacks, it seems imperative that they communicate some of the more meaningful and positive investment strategies they deploy – and this is where strategic communications comes in.  

The second step 

If the first step in changing perceptions is acknowledging the problem, the second is having the will to address it. This is perhaps where the problem has lain for the hedge fund space. There are, after all, a few quite understandable reasons why firms may prefer to keep as low a profile as possible in the press. 

Cultivating an aura of exclusivity is an obvious one. Hedge funds typically cater to high-net-worth individuals, and keeping a low profile can help maintain their exclusive image and better appeal to this select clientele.  

Another, more tactical, aspect is the need to safeguard investment strategies. These institutions rely on proprietary trading approaches and bets that could lose their competitive edge if competitors became privy to them. For instance, if a hedge fund’s position on a particular illiquid security were revealed, other market participants could move against it. This would erode returns considerably – and at a time when alpha is increasingly tough to come by. 

For these reasons, among others, hedge funds have been hesitant to engage too closely with strategic communications firms over recent decades. The problem is this has left them at the mercy of pointed-penned Hollywood directors for too long, and their more progressive investment strategies have been entirely overlooked. 

Beyond shorting 

There is, after all, a wide array of tactics hedge funds deploy to generate returns beyond shorting stocks. For instance, contrary to popular belief, many activist hedge funds take a long-term investment approach with businesses they feel have an exciting growth trajectory ahead.  

In fact, these firms typically hold investments for an average of two years, compared to the market-wide average holding period of about three months. By making a host of tweaks to areas like senior leadership, governance, and operational efficiency, their engagement and longer-term perspective can promote more sustainable business practices and eventually see companies achieve steady growth.  

Hedge funds also commonly target companies they suspect maybe breaking market rules or regulations. For instance, Chameleon Global Master Fund went after Wirecard, the German payments company, which was found to have committed fraud on a massive scale. These are beneficial and progressive strategies, and they deserve more recognition. This is where PR comes in.  

Telling a new story 

It is possible to execute carefully nuanced hedge fund communications and PR strategies that could help them nurture a new identity, to tell a new story, without giving away their investment game. In fact, these are often so nuanced that most won’t realise they have been executed – but they can make a big difference.  

For example, a series of carefully crafted opinion pieces on a hot market trend or asset class could showcase a fund manager’s expertise without necessarily revealing their strategy’s secret sauce. Another tactic could be to provide reactive commentary to a timely news story, helping educate readers on a particularly esoteric or complex topic in a way the layman can grasp. These approaches can help build credibility, install trust, and educate around some nifty investment approaches, without compromising the firm’s competitive edge.  

A memorable line in The Big Short goes ‘People hate to think about bad things happening, so they always underestimate their likelihood.’ Hedge funds might take heed to this advice when it comes to overlooking PR – before their competitors seize on its advantages. 

Key Takeaways: 

1. Why do hedge funds have a PR problem? 

The legacy of The Big Short and similar films has cemented hedge funds as profit-driven entities benefiting from crises, overshadowing their broader investment strategies. 

2. Why do hedge funds avoid media engagement? 

Hedge funds prioritise exclusivity and secrecy to protect investment strategies, making them reluctant to participate in public discussions. 

3. How can PR help hedge funds improve their reputation? 

Through strategic content, thought leadership, and media engagement, hedge funds can reshape their public image without compromising their competitive edge.