The coronavirus pandemic has seriously affected the economies of many countries. People faced several shocks: general uncertainty and volatility of markets, closure of borders, an unclear forecast of the end of the coronavirus pandemic, mass layoffs due to the closure of businesses across the country, an unstable political situation in the world. There is a crisis. What do people do in a crisis? They are urgently looking for ways to secure their savings as much as possible.
It is worth starting with the main global trend in investor relations – a large increase in interest to invest.
Traditionally, people preferred the “golden trinity” of preserving and increasing capital in times of crisis: currency, real estate, and precious metals. A decrease in the profitability of deposits made investors look for alternatives, including offers from hedge funds. Having greater competition in investor acquisition requires hedge funds to pay more attention to investor relations practices.
By the time writing this article, there are 183 open job positions at hedge funds for dedicated Investor Relations Specialists, according to Indeed.com.
Investor Expectations – More Flexibility
The investor relations team of a hedge fund firm is expected to be both adequately resourced and appropriately informed to enable them to publish a regular, consistent set of fund documents and reports which can be easily interpreted by their investors.
Investors expect hedge fund investor relations teams to be sufficiently resourced to produce a regular set of reports for investors. Reports should be comprehensive, timely and distributed to all investors. The content of these reports should include key risk metrics around hedge fund performance, hedge fund exposures and risks by sector, portfolio sensitivity to market stresses and shocks, VAR, indicators of hedge fund leverage and hedge fund AUM.
In addition, these reports should be supported by relevant analysis with performance attribution, explaining the reasons behind fund performance and any key changes that are made to the fund including, but not limited to, changes in investment personnel, service providers or changes to the fund’s governance arrangements. Where possible, the use of external consultants to provide independent reporting and risk reports adds to investor confidence.
“The black box is not a strategy anymore” – ValueWalk
Sophisticated investor relations professionals should be sensitive to the needs of the funds’ investors so they can ideally seek to pre-empt relevant enquiries. The investor relations team must treat all its fund investors fairly.
Funds tend to use fast and reliable software to run the internal processes including investor relations. For example, MetaTrader 5 allows fund managers to set up separate access for your employees and investors, monitor the work of the team members, generate performance reports, adjust payouts based on rates, commissions, payment methods and other conditions. The software helps funds to set individual properties for each fund: requirements for investors, financial instruments, settlement methods, capitalization, share values, etc.
Key Investor Preferences
- Adequate resources to regularly publish risk reports and investor correspondence with at least monthly frequency. Ideally, the regularly published risk report could be submitted by an independent consultant.
- Investor reports clearly explain performance attribution. Selective position-level transparency is helpful.
- Investor letter discusses/details rationale and outcome of positions and clearly explains performance drivers, and indicates expected positioning for the future and rationale.
- Hedge fund risk reports provide a portfolio exposure break-down by sector and geography, VaR, leverage and AUM.
- Investor relations team responds in a timely manner (within 3 days) to investor requests. The team possesses the expertise and qualifications to discuss the fund’s investment process, in detail.
- The investor relations team understands issues from the investor’s perspective and is able to pre-empt queries with clearly written communications.
Client Relation Management – Now Digital
Efficient and effective investor support would be almost impossible without systematic digitalization of IR work in today’s increasingly globalized business and financial world with dynamic shareholder structures. A high-performance investor CRM and targeting solution is indispensable for IR departments.
Even more so because the restrictions on travel and gatherings due to social distancing measures introduced since the beginning of the COVID-19 pandemic are increasingly moving roadshows, investor events and other capital market conferences that used to be based on personal contact online.
According to Euronext’s study, one third of the companies surveyed categorized themselves as open to the further digitalization of IR work. One in every ten also described themselves as willing to experiment with the use of new digital IR instruments.
The way hedge funds communicate with investors is changing rapidly. Having a PDF report as the primary tool to communicate with investors is quickly becoming outmoded.
A new type of progressive and modern hedge funds will emphasize a hyper-focus on delivering solutions, interactions, and experiences to the institutional investor community. Such funds may scale their companies by leveraging the right technology and administration software in doing those tasks.