Private Fund Managers: The Do’s and Don’ts of Investor Communications in Times of Crisis
Authors:
Genna Garver, Partner, Troutman Sanders
Cot Eversole, Associate, Troutman Sanders
Chrystalle Anstett,
Sound Mark Partners
Investor communications become even more critical in times of crisis. While certain principles apply regardless of market realties, fund managers must adapt their approach to ensure transparency and maintain the trust of their investors. Fund managers should consider the following in their crisis communications strategy in this third installment of our "Do's" and "Don'ts" series:
Do’s
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Grab the mic. In a crisis, it is imperative for fund managers to establish themselves as the single best source of information on all matters pertaining to their fund. The best way to establish trust and put concerns at ease is to be out front, sharing real-time analysis of the situation and insight as to the plan forward. For those fund managers new to investor group calls and Zoom meetings, please see our “ Do’s and Don’ts for Investor Calls”.
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Pick up the pace. In normal times, private fund communication consists mainly of quarterly letters interspersed with more timely updates for “as-it-happens” news like deal announcements, new investments and recent realizations. The frequency varies by fund, but, on average, fund managers provide a formal update every 8–12 weeks. In a crisis when there is more “as-it-happens” news, the pace tends to increase to every 2–4 weeks. Being proactive and transparent on a more frequent basis is essential to provide LPs with the data they need in order to make real-time assessments of their portfolio in terms of liquidity needs and asset class weightings.
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Keep it real. Give investors the facts as they are that day. Inform them of the issues and the opportunities and what you are doing about them. Be specific. There is no quicker way to turn off an investor than to talk about your “proprietary deal network” without backing it up with data. If you can’t back it up, the statement could be deemed misleading. Be mindful of the type of information you are sharing and any privacy and confidentiality issues that may arise. If you are uncertain as to whether there are restrictions on what you can share, reach out to counsel who can assist you.
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Keep it tight. No one has time for 10 page updates right now! One approach for providing concise portfolio information is the “traffic light system,” highlighting the investments of greatest concern and those investments demonstrating strong performance. Regardless of approach, be mindful of the Investment Advisers Act advertising rules and clear all performance information with your compliance department as required under your policies.
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Preview bad news. Pick up the phone and give your LPs a heads-up. Don’t let the first time your LP is hearing about a problem be in the 4th paragraph of the quarterly letter. LPs understand that investing comes with bumps in the road, but they will not be so understanding if they feel information was hidden from them. Remember your fiduciary duties require you to disclose all material facts and circumstances.
Don’ts
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Bite off more than you can chew. If you have never hosted webinars or made “care calls” before, proceed with caution. Implementing these activities takes time and resources away from managing the fund’s portfolio. When not done properly, these efforts can cause more harm than good.
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Drop the ball on internal communications. This point is particularly critical now with teams socially distancing and working from home. Out of sight cannot be out of mind. Make sure everyone is on the same page with respect to any challenged areas in the portfolio and the action plan so that communications—written and verbal—are consistent. Take care to follow your established compliance policies and procedures for external communications.
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Neglect your consultant database profile. Once LPs and their consultants wrap their arms around where their asset allocations stand in the wake of the market disruption, there will likely be a need to rebalance and any new searches will start with consultant databases. Make sure your profile information is up-to-date so you don’t miss out on any screens.
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Be unrealistic. You cannot expect your investors to behave as if this is “business as usual.” It may no longer be feasible for them to join a live investor call or participate in a half-day annual meeting, even if reproduced virtually. The key is to make yourself available and to provide information in a digestible format. Be considerate of peoples’ time. Consider providing recorded investor updates via a web portal for investors to review at their convenience.
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Take options off the table. While it might not be the intent today to utilize liquidity management tools, the situation may change tomorrow. These tools exist to provide the flexibility needed to protect investments. Don’t give away your authority to exercise these tools by creating the impression you won’t use them. Consider preparing an internal matrix mapping out the tools provided in your fund documents with your counsel. Some rights may require lead-time to implement so now is the time to be clear on your authority and flexibility.
Additional Resources
For more “Do’s” and “Don’ts”, please see the first two installments of our series:
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The Do’s and Don’ts of Investor Calls That Investment Managers Must Consider, Hedge Fund Law Report, May 7, 2020.
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Private Fund Managers: The Do’s and Don’ts of Working From Home, April 28, 2020.
Guest Author
Chrystalle Anstett, CFA - Head of Capital Formation. Ms. Anstett is the Head of Capital Formation for Sound Mark Partners. In this role, she is responsible for supporting the firm’s limited partners through proactive, insightful and transparent communications, and for continuing to develop new investor relationships, distribution channels and capital sources. Ms. Anstett has 20 years of institutional investment experience, spanning roles in research, capital strategy and investor relations.
Prior to joining Sound Mark, Ms. Anstett was the Co-Head of Private Credit for Eaton Partners, a global capital advisory firm, where she led the origination and underwriting of the firm's credit-related offerings. Prior to joining Eaton Partners, Ms. Anstett helped build the business development and investor relations group at QFS Asset Management, a $1.4 billion systematic global macro hedge fund. Previously, she held several roles at Goldman Sachs Asset Management, beginning in the Business Development Services group and later joining the Fixed Income Product Management team. She began her career at Lazard Asset Management in accounting and later joined the institutional marketing group.
Ms. Anstett is the author of several articles and white papers on institutional investment strategies, which have been featured in Absolute Return, Bloomberg Markets and HFM Investor Relations. She is a frequent speaker on trends in institutional investing.
Ms. Anstett graduated cum laude from New York University Stern School of Business, where she received a BS in Economics and International Business and was a Stern Scholar. She is a Chartered Financial Analyst.