What we are experiencing today during this terrible Covid-19 pandemic is clearly unprecedented, but there are a number of lessons that alternative managers can take on board from what went on in the darkest days of 2008.
I am not saying that a systemic financial crisis is the same as a pandemic. The situations are poles apart, but investor concerns in both cases are broadly similar.
Investors want protection, performance and liquidity; investor confidence has taken a dive, overall industry performance has not been stellar and the outlook, as things stand, remains uncertain with further action to play out.
One of the most important lessons in the alternative space from 12-years ago was the importance of looking after investors and the merit of stronger communications. At the time, this was a significant development for many managers that took them out of their comfort zones.
Since then, communications have become an integral part of the manager’s offering, with far more in-depth fact sheets, newsletters, commentary, presentations and greater portfolio transparency.
Yet expectations from investors, especially today during this current situation, is for even more and managers should take heed.
Opening-up in the first place was largely driven by necessity and later on by regulatory requirements, but it also provided much needed reassurance for jittery investors. Similarly, now is the time to over-service, not under-service your investors.
Back in 2008 there were certain managers who went the other way. These managers totally cut off their lines of communication. As markets fell, managers and their investor relations teams failed to return calls, relying purely on sparse monthly factsheets to tell their story.
This was disastrous and ultimately was the kiss-of-death for many, particularly those that added gates and suspensions to the mix, for when markets turned and some of these same funds ‘reopened for business’ and sought further investment, they were quite rightly turned away.
Anecdotally - and this is the real reason for these words - it has been worrying to hear of similar stories in recent weeks where communications between managers and investors have fallen short of investor expectations.
In any crisis situation, across all industries, not just in asset management, it is incredibly important to communicate pro-actively with your stakeholders and try to get in front of the story.
When concerns run deeper than just economic malaise, but are also about fund performance and the health of investors’ hard-earned investments, then conversations become incredibly tough. This is about maintaining manager credibility and re-igniting confidence. For once this is lost, the manager has lost the battle.
Given these markets, investors can hardly be surprised that certain managers and strategies have been whipsawed. But investors, as we saw in the Woodford saga, do also need to be treated with respect and cannot be taken for granted or looked at as a means to an end.
Investors are the manager’s lifeblood and no manager should think of themselves as bigger than their investors.
There is also a longer-term game to play. An old colleague of mine, when trying to explain a macro portfolio performance to a group of disillusioned Dubai-based investors in October 2008 had shoes thrown at him, yet these same investors were topping-up their investment a short-while later.
On the other side, even when a manager’s performance is outstanding, given today’s uncertainty it is still prudent to regularly speak to investors. The manager probably believes that their time could be better spent navigating these troubled waters (I am sure quite rightly), but it is also a balance and a responsibility to investors that a manager should wear, come rain or shine. Looking after investors in these times also stands them in good stead for the future and refocuses their ‘star status’.
In today’s markets, as a matter of course, investors want to hear:
In-depth run through of portfolios – what has worked, what has not worked and why.
Insight on the current positioning – the rationale – and what is being done on a daily basis in the face of market volatility.
On top of which, always have a story to tell. Have something new to say about the opportunities in these markets.
Investors memories run deep. If they are treated well and treated fairly, they will remember you for the right reasons. For this reason, and for this reason alone, be proactive and reach out to investors, do not wait for them to call you:
Pick-up the phone and talk to investors. There has never been a better time to use new technologies to stay in touch, be it Zoom, Teams or the like. This does not have to be time onerous – it can all be done remotely – and without doubt is hugely valuable.
Communicate with investors off-calendar, do not wait for month-end or quarter-end. The danger is unwittingly creating a vacuum with no news, at a time when investors are jittery and jumping on any market news (good or bad). This is a dangerous position to be in.
Not too long ago, managers were complaining about the lack of volatility and expensive equities, well equities are now looking much cheaper, there is no shortage of volatility and central banks are taking unprecedented steps.
It is times like this that managers need to take stock, look after their investors and develop their businesses. Some funds will go to the wall, others will thrive. It is about being proactive and showing the real value of active management.