As investors continue to demand detailed information and more frequent updates from portfolio managers, the investor relations teams at hedge funds are gearing up for increased activity. Comac Capital, a London-based discretionary global macro hedge fund manager founded in 2005 by Colm O’Shea, has put investor relations at the heart of its business.
Current CEO and partner Hopewell (Hope) Wood started at Comac in 2007 as director of investor relations and also oversaw marketing activities. Now Beatriz Carrillo, who joined in 2009, has taken over those functions. Both work together closely and believe a strong investor relations team is critical to a successful asset management business.
For Wood the biggest challenge is consistent delivery of information that is timely, accurate and useful to investors. “That’s something we spend a lot of time over the years developing. We do it by different means: systematically through our website and sending mass emails on performance updates, monthly letters and risk reports, and on a more personal level through regular update calls. But getting that communication point right is always a challenge.”
Useful information, says Wood, is any information that helps an investor make informed decisions about whether to retain an investment. “It’s really a function of making sure they know what risks we have in the portfolio and if there have been any changes to the investment firm.”
Carrillo’s team consists of five people with various specialisations. Marketing and investor relations overlap “a little bit”. Two people focus full time on those two roles, with the other three taking on more specific tasks, such as due diligence and transactions.
“In our setup, everybody looks after everybody. We have a lot of cross-coverage. That was something that was really important for us from the beginning. Everybody in the team knows what they are supposed to be doing, have a clear set of responsibilities, but at the same time there is also a lot of cross-coverage,” says Carrillo.
One thing everyone in a hedge fund dreads is giving investors bad news. But this is often the defining moment for investor relations. Last August, Comac laid off around 18 employees because of a couple of years of investment losses resulting in a significant drop in assets under management. For a hedge fund that puts emphasis on economic and political analysis, this could have been seen as a low point in the fortunes of the company.
Telling remaining investors about the layoffs and managing the potentially negative press brought Carrillo’s team to the forefront. The decision to cut staff made strategic sense. It reduced the investment team back to the size it had been at the start of the fund, according to Wood.
Letting investors know what was happening was “simply a matter of phoning and explaining that the fund was retaining its institutional infrastructure but regaining some of the nimbleness that it had lost over time. We thought it would have really positive benefits for the firm overall and the fund,” says Wood.
“Our job is to communicate both good and bad news. Communicating bad news is probably what is most critical to our role,” adds Carrillo. “What’s important is to do it quickly and be very transparent and honest. The most effective way has been to pick up the phone to call investors or to speak to them face-to-face. What’s most important is to have a message that is consistent and reaches all of your investors within a set time frame and that investors don’t hear that message from third parties.”
Both Wood and Carrillo emphasise the importance of standardised and systematic communication with investors. For Comac that means monthly letters and risk reports plus weekly performance estimates. It is about keeping investors up-to-date in terms of what is going on with the fund, performance and if portfolio management views have changed.
Some investors, they admit, need a “little more hand-holding”. “There are investors that may have questions about a particular market event that took place and they want to get on the phone and have you explain or talk to somebody from the investment team,” explains Carrillo, adding there is a balance between this more ad hoc communication and the standard. “We do a lot of ad hoc, update calls between investor meetings so it’s a pretty good balance between what is standardised and what is more ad hoc. Clearly having a good mix of both is what makes successful communications with investors,” Carrillo believes.
One initiative started this year was a move away from the traditional quarterly investor conference call to a quarterly webcast. “That’s been well received and useful,” says Woods. The interview and interaction with O’Shea, the chief investment officer and main portfolio manager, is also available on the website for investors, something Wood says has been a “useful tool for investors – to regularly see and hear from him”. Many have also said they prefer this format to a quarterly call since they have a chance to see O’Shea; they find the format more personal than a phone call.
Another area of innovation is on ‘visualisation’. One of the added benefits of the webcast compared with a conference call is the ability to use charts to explain positions and views. “Over time we have become a little bit more ‘graphic’ in the way we try to explain what we’re doing and why. That is generally well received by investors as it makes it much easier for them to understand both the environment as a whole and what we’re actually trading,” Wood explains.
One area where the team has become more involved since the advent of hedge fund regulation is with compliance. “There has been an enormous amount of regulation. From an investor relations perspective, the engagement is around regulatory reports that we need to complete,” says Wood.
The company needs both its marketing and investor relations teams to ensure compliance with a variety of country regulatory environments. “We spend a lot of time looking at the requirements of different jurisdictions and making sure we adhere to them,” she adds.
Looking forward, Wood says the main challenge to the team will be the introduction of the alternative investment fund managers directive (AIFMD). “We’re already involved in this and actively working on it, but it remains to be seen how it functions in practice,” says Wood.
Aside from the impact regulation will have on fund management, Wood thinks social media may begin to play a larger role with hedge fund investor relations in future. “The use of things like website portals for repositories for information and as a means of communicating [with investors] will become increasingly important. Social media over time will become something that the funds start to use,” she says.
“That’s something we discuss quite a bit internally: to engage or not. So far we’ve decided not to engage but it’s something that is becoming more relevant. I am sure the industry will not be able to successfully bypass it. The investors of today might not be very active users of social media but the investors of tomorrow certainly will. So we are looking at how to engage with that,” Wood concludes.
Comac Capital was given the best investor relations team award at the European Single Manager Awards 2014.