Opalesque Exclusive: As investors question performance, strategy, and redemption rates of hedge funds communication is key

By Kirsten Bischoff

November 14, 2008

Denholm Hall, which has invested in the Russian markets since the early 1990s, reached out to investors this week addressing concerns of illiquidity in the Russia markets and redemption requests for Denholm Hall Russia Arbitrage Fund.


In 2006, Denholm Hall was ranked by Allenbridge as the top performing emerging market hedge fund (over a three year period).


“We are currently working on a plan that best addresses the needs of all investors in the fund, whether current or redeeming, with the intention of treating all investors fairly. This may involve a restructuring of the fund, including a proposal to manage current redemption request and changes to the Fund’s hedging policy,” said the letter.


Communication is key
The letter was skewered by a media outlet today, and numerous other managers have seen their investor communications receive similar attention in the press as well. The industry (with the exception of a few) is seeing a decline in assets and performance almost across the board for the first time in its history and as such many managers are trying to increase communication with investors as one way to try and stem redemption requests.


“Effective and proactive communications—including selectively speaking to the media—is critical for hedge funds that are under pressure. Managers need to understand that any letter they email to investors, which discusses negative performance and/or redemptions, will end up in the hands of a reporter minutes after they hit ‘send.’ The days of ’flying below the radar’ are over,” says Richard Dukas, President and CEO of Dukas Public Relations, which announced two new groups (asset management and financial & professional services) within its financial practice this week.


“Managers need to be more transparent with the press; and by doing so, they actually will be treated better than if they refuse to comment. Just look at Ken Griffin at Citadel. His policy of not speaking to the press only made his situation worse once word got out that he was having performance problems. Had he engaged the press earlier on and emerged from his self-contained bubble, his reputation wouldn’t have taken such a big hit,” said Dukas. Griffin, who was one of the select group of hedge fund manager representatives to testify Thursday in front of the House Committee on Oversight and Government Reform, runs the giant hedge fund Citadel Investment Group and has two funds down more than 30 percent this year.


“At day’s end, if your performance is down, you need to expect to take a slight hit in the media, but the negative coverage can be mitigated if you speak with the press instead of hiding. Importantly, during these difficult times the best defense is a good offense—managers have a great opportunity to demonstrate leadership and conviction by proactively providing commentary and perspective in the media. This sends a very strong message to investors: it shows that they are confident that their investment strategy is the right one; and that despite current fears and market turbulence, they should continue to perform well over time—and investors should stay the course.”