Hedge funds strengthen comms during recession

December 4, 2008

NEW YORK: Financial communications professionals are reporting greater activity from hedge funds, which have been plagued with poor performance numbers stemming from the economic recession.


“We're seeing an increase in activity,” said Daniel Simon, MD of Cognito, which works with hedge-fund clients in the US and Europe. “In an era of depressed performance, they realize they need to pay more attention to how they communicate with current and prospective investors. A surprising number of hedge funds [previously had] no coordinated way of communicating with their investors and no consistent message for prospective investors.”


MarketWatch, referring to findings from Hedge Fund Research revealed in November, reported that the average hedge fund had lost 16% so far this year, compared to last year. Many hedge funds have suspended or imposed restrictions on withdrawals or redemptions to staunch the bleed.


“For hedge funds right now, many of them are facing the same issue – redemptions,” said Richard Dukas, president and CEO of Dukas Public Relations-www.dukaspr.com. “There's unease among the hedge fund investor base.”


“The only thing spurring [hedge funds] to action is the possibility of making money or the risk of losing money,” Simon added. “Driving the need for communications is fear of losing investment and, for some hedge funds that are sensing a bottom to the market, the opportunity to launch new funds.”


The faltering economy has many hedge fund investors scrambling to pull their money, making communications with investors a main priority. Todd Fogarty, partner at Kekst, said there are more hedge fund pros approaching the firm for help crafting letters to investors and messaging for conference calls.


“They've become more thoughtful about how they talk about strategies driving investments and where they think the market is going,” Fogarty noted. “It's more qualitative commentary, rather than, ‘Here's the numbers. This is how we did.'”


There's also more strategy behind media relations.


“When the media checks in because they've heard a rumor... smarter firms are thinking strategically as to how to respond, instead of an automatic, ‘No comment,'” he added.


NOTE: Richard Dukas added the following:


“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.


“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.


“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.”