FundFire’s “Aurora, Permal Confront Investor Worries,” posted on March 9th, 2016 by Rachel Levy, illustrates how large institutional investors are increasingly withdrawing from top hedge funds due to organizational changes and performance issues in 2016.
Andrew Saunders of Castle Hill Capital Partners, Inc., explains that to avoid redemptions, it is critical to maintain communication and transparency with investors when a fund undergoes change.
Being named on a consultant’s watchlist or facing redemptions aren’t necessarily big problems for a manager, says Andrew Saunders, a senior managing director at Castle Hill Partners, an institutional marketing and brokerage services advisor. The key is for hedge fund managers to communicate clearly with their investors, he says.
“Being put on watch is almost an automatic thing,”when there are structural changes at a firm, Saunders says. “If there’s a strategic rationale, and you can identify and ameliorate any issues or concerns, then you’re on top of it. It’s not necessarily that they are going to redeem because you sold your firm.”
Still, managers must show investors that their relationship remains stable, Saunders says. “They need to reassure [investors] that whatever they bought is the same thing or close to it,” he adds. “If it’s changed significantly, they need to reset [investor] expectations.”
A good benchmark for managers is to consider any change from the investor’s perspective, Saunders says. “Understand that [the investor] has to explain your performance or your situation to either their board or their boss,” he adds. “That should guide your interaction and outreach with them.”
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