The Era of COVID-19 for Private Fund Managers: The Do’s and Don’ts of Investor Calls
Investor calls are a great way to provide transparency to private fund investors during these unprecedented times. However, even well-intended managers must be vigilant when hosting these calls to avoid certain pitfalls. To protect themselves from liability, managers should consider the following “Do’s” and “Don’ts” while planning their calls [1] :
Do:
-
Use a reputable platform provider to ensure security.
-
Control your audience by using a platform that requires registration through a private link. The registration process not only allows you to control invitations (especially important for funds with ongoing offerings), but also provides an opportunity to obtain affirmative acceptances from each registrant of the call’s terms and conditions.
-
Have a prepared script for the call and do your best to stick to it. Announce at the beginning of the call whether there will be time for a Q&A. Anticipate what questions might be asked and prepare your answers in advance.
-
Make an affirmative decision in advance whether the call should be recorded. Speak to your legal counsel about the pros and cons of recording. If the answer is “yes, it is a good idea to record the call,” disclose the fact that the call is being recorded to all attendees. If the answer is “no,” state on the call that it is not being recorded and attendees are not authorized to record it either.
-
Regardless of whether the call is recorded, start the call by having the platform moderator read concise legal disclaimers for the call, including that the call is confidential and any opinions expressed on the call are made as of the date of the call and are subject to change without notice based upon numerous factors.
-
Present the facts and stick to them. No one has a crystal ball.
-
Give the “State of the Union”—investors want to know if the business is staying strong. Consider addressing the following topics about the adviser’s team in light of the current market:
-
Year-to-date performance
-
Business continuity and succession planning—is your BCP working as intended?
-
Health of key personnel (while remaining cognizant of laws surrounding a person’s personal health information)
-
Issues presented by the shift to remote working policies
-
Strategies for managing volatility and liquidity issues—investors may want to know what percentage of the portfolio has been moved to cash and whether you have received substantial withdrawal requests
-
Timing issues relating to tax information, audits, and net asset value calculations
-
-
Ensure that any presentation materials provided by a manager registered with the SEC comply with the Investment Advisers Act Rule 206(4)-1 (the “Advertising Rule”). Reminder: all statements, whether written or oral, remain subject to the anti-fraud provisions of the Investment Advisers Act and other federal and state securities laws regardless of whether the manager is registered or exempt. Another reminder: the Advertising Rule recently was the subject of proposed amendments [2] . Make sure you are aware of those proposed updates but act in accordance with current rules.
-
Address frequently asked questions that you have received from individual investors. Especially for funds that offer liquidity rights, ensure that all investors are up-to-date and have been presented with the same information material to their decision to remain in the fund through the next withdrawal date.
-
Take questions through your platform’s private Q&A feature to allow for vetting. If this feature is unavailable to you, offer to take questions after the call on a one-on-one basis rather than open the floor to questions and comments. Also consider soliciting questions prior to the call. If you do not address a question publicly, follow-up after the call with that particular investor.
-
Be compassionate; investors may understandably be shaken by current events. Explaining how you are continuing to meet your fiduciary duties during this disruption should provide reassurance.
Don’t:
-
Invite attendees to the call on a selective basis or hold different calls for different groups of investors.
-
Represent that the current marketplace is “business as usual”; this situation is unprecedented and presents issues for everyone.
-
Use an unsecure platform, especially if you are sharing confidential or material nonpublic information. Reminder: we are seeing unprecedented numbers of cybercrimes, many of which are targeted at the financial services industry.
-
Alter your typical approach with investors; if you are generally forthcoming with them regarding matters related to the fund, then you should continue to do so; a deviation from your typical approach may cause panic.
-
Make promises or prognostications.
-
Publicly disclose investor names in breach of confidentiality agreements, your current business practices, and/or privacy policy. If this is an issue for you, make sure your platform does not list registrant names on screen.
-
Fail to address any issues, or potential issues, with third parties (for instance, the fund’s administrator, custodian, futures commission merchant, or prime brokerage) or the fund’s cybersecurity of which you are aware.
-
Withhold or overgeneralize information regarding the fund’s developing strategy, particularly in instances where you are veering from the stated strategy of the fund (e.g., a pure equity portfolio turning into a pure debt portfolio).
-
Fail to address any alterations to the fund’s valuation methodology. If you have any concerns about valuations, now is the time to review your policies and procedures. Check out In re Deer Park Road Management Company, LP, and Scott E. Burg, Administrative Proceeding File No. 3-19190 (June 4, 2019).
-
Overshare. Deciding how much and what type of information to share is critical. Oversharing, especially without proper context, can lead to confusion and be misleading. Reminder: certain investors may have side letter rights to information that other investors do not—e.g., the existence of a routine SEC exam—and not all types of information are required to be shared. If you are uncertain as to which information to share on that call, reach out to counsel who can analyze the specific facts and circumstances surrounding the disclosure.
For further discussion on building a culture of transparency for your fund, please also refer to our article “ Rights and Risks in the Age of Transparency” featured in Private Equity International.
[1] Investor calls are made for many different purposes. This commentary is being provided in the context of an annual investor call or an update call generally. Investor calls with limited partner advisory committees, or in connection with litigation or regulatory updates may be subject to different guidelines.
[2] For more information on the proposed amendments, please see this article which appeared in the National Society of Compliance Professionals’ Currents.