Boreas: The Importance of Investor Communication When “It” Hits the Fan

Oct 16 2015 | 11:03am ET

The Importance of Investor Communication When “It” Hits the Fan

By Andre Boreas, CEO, Quadsight Partners

Well, that wasn’t fun...the third quarter saw market volatility come back in a big way, dragging down all the major indexes for the period (if you were long volatility, congratulations!) Given that the markets have provided a stream of relatively steady performance in the past few years, the third quarter, and September in particular, mostly likely came as a shock to investors.  Fund managers are undoubtedly facing a barrage of questions from clients these days.

When the going gets rough and managers take it on the chin, the first inclination is to duck and cover and rest the blame on the market (or the Fed, or China, or irrational market participants.).  There could very well be more than an ounce of truth to that, but it does little to appease investors who have grown accustom to a portfolio-friendly stock and bond market.  

So after many years in manager due diligence (including some very rocky periods) I’ve put together some reminders on the Do’s and Dont’s when performance is not going quite as planned:

Don’t run and hide – Managers are happy and willing to get their favorite missives out to clients and prospects when the going is good but that last monthly or quarterly commentary just became much harder to write.  Look at this as an opportunity to show transparency with your clients and reach out – in an email or conference call – well before the requests start coming in.  It’s been a while since we’ve seen a significant drawdown in performance and uptick in volatility, and clients are understandably nervous.  Make time for them.  This is when client service and investor relations earn their stripes. Clients will appreciate it.

Don’t make excuses/blame others – It’s easy to dismiss underperformance as: “Well, the market went against us” or “our style of investing is out of favor right now”.  This could very well be the case, and its perfectly justified, but it’s a lot harder to dismiss when you’re trailing your peers. Remember, we all work in the same markets and economic environment. If you’ve made mistakes or somehow got blindsided, own up to it, explain what went right and what went wrong and outline the corrective measures you have or are currently putting in place.  Just don’t throw everything on to the market. Investors are smarter than that.

Don’t refuse the press – The mainstream media seems to be on a witch hunt these days, particularly with hedge funds.  The active/passive/fee debate is never far behind as well.  If the press does reach out to ask about your performance, be honest and forthright.  No one says you have to give away the secret sauce, but it’s better to explain the facts, remind everyone of the portfolio’s objectives, be positive and, again, look at it as an opportunity to establish goodwill across the industry – with clients, prospects and the media.


Do explain the source(s) of negative returns – clearly and succinctly.  If you have a significant amount of “negative attribution”, provide examples both at the macro level and position level.  Be prepared as the questions are going to come.  Again, proactivity in terms of client outreach with a good dose of transparency can go a long way to keeping assets in the door.

Do emphasize the long-term – Many investors focus too much on short-term performance to the chagrin of many fund managers.  Nobody asks questions when you’re up 20% but investors will put you on speed dial when cracks start to appear. Remind them that the market does have gyrations and that yes, economies, policy and valuations do change over time – all of which is why the vast majority of fund managers emphasize a longer-term time horizon.  Nobody likes to lose money, but it doesn’t hurt to mention that the goal is not win every battle, but to win the war.

We haven’t seen a quarter like the one we just had since 2011. Investors are understandably nervous.  Being proactive with your clients when portfolio performance is down can represent a compelling opportunity to establish goodwill – not only with your investors but with the community at large. Transparency, objectivity and clarity should rule the roost when communicating to investors. 

Andre Boreas is the CEO of Quadsight Partners, a marketing communications and PR consultancy solely focused on helping investment managers, wealth managers and service providers drive assets and achieve their business goals. He has spent over twenty years as an institutional investor, portfolio manager, marketer and product manager.

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