For a hedge fund manager to stand out in a crowded capital raising environment, its marketing must be lucid, coherent, consistent, credible and compelling. The core purpose of hedge fund marketing is to convey the manager’s sustainable competitive advantage, and in doing so, managers typically find case studies persuasive. If properly structured, case studies can demonstrate how a manager achieved reported results rather than merely communicating what those results were. That is, a good case study can help substantiate a manager’s claim to competitive advantage, while at the same time illustrating the sustainability of the advantage. However, the use of case studies by hedge fund managers in marketing is constrained by law and regulation, some of it counterintuitive to a logical portfolio manager. For example, if a marketing presentation describes a successful investment with 100% accuracy, that presentation may nonetheless be materially misleading under the federal securities laws. In short, case studies have obvious business value, but sometimes non-obvious legal risk. This article is the second in a series seeking to untangle that risk for hedge fund managers that wish to capture the upside of case studies in marketing. This article continues the discussion of risks associated with use of case studies (initiated in the first article in this series), and provides five best practices for managers wishing to use case studies in marketing. The first article in the series described the purposes and typical contents of case studies; identified the types of managers and strategies that use and benefit from case studies; and began the discussion of risks associated with use of case studies in marketing, including an analysis of the cherry picking rule. See “How Can Hedge Fund Managers Market Their Funds Using Case Studies Without Violating the Cherry Picking Rule? (Part One of Two)
,” Hedge Fund Law Report, Vol. 6, No. 46 (Dec. 5, 2013).