Open Your Mouth!
Late during just the second month on the job raising capital for a hedge fund, one of the managing partners called me and said:
Hey, just a head’s up – looks like we are going to print a plus 7 or 8 this month!
I clearly didn’t respond in the way that he had anticipated:
That’s awesome. I’ll make calls and start explaining to our investors.
Explaining?? What are you talking about, JD? I said we are up 7% for the month!
The magnitude of the performance was not lost on me, of course - and although it may have appeared that way, I certainly wasn’t being “ungrateful.” After all, +7% is a whole lot better than -7%. He began to understand my point when I added, “Any reason to think that our investors would have anticipated this?”
Like most managers, the firm had always guided investors to expect “consistent” performance – more like low-single digits as opposed to high single digits. Upside volatility is rarely an issue – unless it comes completely out of the blue. And then it really can be an issue. After all, if you can “surprise” to the upside, what makes you think you can’t surprise to the downside? Either way – surprises weren’t high on our client’s wishlist.
Despite how it may appear, my point really has nothing to do with returns. It has to do with the need to communicate and of course, be transparent in the process. And communication does not even necessitate you talk about numbers or even the portfolio. It just requires you to talk.
Staying top of mind and being considered a thought leader takes more than simply providing month-end performance and attribution. Including commentary can be helpful – but that certainly doesn’t put you in the value-added category. Given the sheer volume of information hitting investors all at once, there is not a high likelihood that someone can truly pay attention to you in that moment anyway.
But saying something original in a time when they are not being bombarded by everyone else at least gives you a chance to be heard. Sure, not everyone wants it…but many do. And if your investors are really your “partners” - then they probably appreciate your efforts to develop a genuine dialogue with them.
This doesn’t require a lot of information, just interesting information. And there are so many ways to do this that would be considered value-added. Talk about your thoughts on a current event. Catch-up on an industry theme. Postulate. Theorize. Challenge. Educate. Be witty or funny or analytical. Say something that others do not. You do interesting stuff, you see interesting things…figure out what has broad relevance and start to connect.
People do really appreciate this. Along the way, you may find yourself impressing future potential investors, as well.
By JD David