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Next-Generation Client Management: Leading the Pack with Investor RelationsBy Rich Cockrell, President of The Cockrell Group

There was a time, not so long ago, that fund managers enjoyed an effortless in-flow of investor capital. They were able to concentrate on achieving the right mix of investments to deliver the best performance with little need to communicate to investors beyond the standard periodic statement.

Then came the breakdown of the global economy. Weakness in industrialized countries, a continuing increase in the number of funds available to investors, and recent investment scandals have altered the fund management landscape. With the ability to transfer funds becoming easier and easier, in this brave new (post-Madoff) world, institutional investors have added trust and credibility to the benchmarks by which they assess funds. Today they are more likely to work with fund managers who connect with them rather than simply going with those who show good performance in their funds.

These changes present a new set of challenges to fund managers. In addition to managing fund performance in an increasingly competitive market, they must:

Retain current investors despite overall market conditions or periods with less than satisfactory manager performance.

Create and maintain a conversation that with clients that instills confidence and motivates the current investor to introduce prospective investors.

Ensure that clients understand the fund investment strategy and are able to relay the strategy to their constituents and to prospective investors.

In order to thrive in the current environment, fund managers must work with people as well as numbers. They must change the value they place on the “soft” side of the business in order to retain clients while focusing on future growth. Specifically, they must:

• Incorporate proven practices in investor relations (IR) into their operations.

• Make the investor relationship a top priority• Leverage the right strategies to efficiently and effectively

communicate to their investors.

These requirements merit examination in more detail. This white paper begins that examination; subsequent papers in this series will delve even further into approaches, practices, and strategies that will help fund managers implement pack-leading IR initiatives.

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This paper is the first in a series examining

best practices in investor relations in

the context of helping fund

executives gain an advantage in the

current market.

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It’s a buyer’s market. With intense competition for their dollars, institutional investors are able to call the shots, and they are doing so by demanding more visibility into a fund’s investment strategy, risk, and performance, as well more liquidity than was previously available.

And fund managers are complying. To successfully compete in the market, they are looking for “investor stickiness;” that is, they are looking for approaches and strategies that will motivate investors to stay with them through good and bad times. Smart fund managers recognize that stickiness comes with relationship.

Relationship is formed in the presence of credibility and trust. When the investor believes the information the fund manager is providing them, stickiness goes up. When the investor trusts that the fund manager is managing well, stickiness goes up. When the investor feels a high degree of partnership, stickiness goes up.

Best practices for establishing and enhancing investor relationships are being employed by fund executives. Initially acquired from corporate IR programs, these practices emphasize

the need to be proactive, to reach out, to investors rather than sit back and maintain a reactive stance. Examples of tactics cited by corporate IR executives (and that are adaptable to the fund IR space) include:

Investor education initiatives that share strategic information about the investment process and about industry trends.Surveys conducted by a third party that “take the pulse” of current and prospective investors and allow them to provide input focused on operational improvements.Incorporating results from these surveys into investor communications and fund positioning.

Regularly scheduled one-on-one meetings with institutional investors (in lieu of contact limited to financial conferences).Non-sales “road shows” that include analysts and media representatives as well as investors.

Making the client relationship a priority“Markets are conversations”The Cluetrain Manifesto

Relationships are formed in the presence of

credibility and trust... When the investor trusts that the fund manager is managing well... When the investor feels a

high degree of partnership...

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• Christopher Locke, Doc Searls, David Weinberger, The Cluetrain Manifesto, 2000/2009

• Investor Relations – Best Practices: Interviews With Executives™, Special Report #6, Capital Markets Board

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“For many Managers, investor letters (or other similar communications) provide the opportunity to communicate in their own voice. Accordingly, it may be written in any form or style that the Manager desires (preferably at least on a quarterly basis) and would generally be expected to include updated information on developments relating to the fund…”

Best Practices for the Hedge Fund Industry

• Mark Report Of The Asset Managers’ Committee to The President’s Working Group on Financial Markets, January 15, 2009

Investor relationship is rooted in high quality communication. Establishing a cycle of engaging, informative, “plain English” communications is part of an effective communication strategy. Further, providing information in multiple formats through multiple channels enhances the investor experience, which increases that all-important stickiness. Communication channels include:

• Written, both electronic (email, website) and printed (letters, reports)

• Social media (secure client-only forums, blog)• Live events (one-on-one meetings, road shows, webinars)

Frequency and type of communication depends on various factors. Communicating “just to communicate” will not build the needed trust, credibility, and relationship. Messages need to be of value to prospects and clients, and need to be at a frequency that will not feel “spammy” to them. Monthly or bi-monthly insights into the state of the market and the hedge fund industry, information about the investor base, and details about the fund’s performance and investment strategy are likely to be welcome messages in whatever format they are delivered.

Technology-enabled communication tools and resources offer fund managers innovative options to reach existing and prospective investors. Leveraging the wide range of available

technologies for connection will create a rich, well-executed cycle of messages that serve to cement relationship and attract new investment.

Examples of technologies that fund managers can leverage for results include:

• Social media forums that allow two-way dialog.

• Videos made available to investors and stakeholders online.

• Secure web portals that combine communication with online transaction capability and document repositories.

• Webinars that combine real time audio and video for a virtual workshop or meeting.

• Email list services that allow large (non-spam) broadcast of messages, which can be queued up to go out over a period of time.

As with any other business expense, return on investment must be considered. Technology-enabled communication strategy needs to include metrics to gauge effectiveness.

Leveraging the right communication strategies

AboutThe Cockrell GroupYour management team has a business to run. Most of our clients do not have the time and resources to handle the critical, day-to-day interactions that most investors often demand. The Cockrell Group is a proactive investor relations firm that can serve as a buffer between fund managers and their sometimes frequent, or infrequent interactions with the client community.

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Cockrell Group 1230 Peachtree Street18th FloorAtlanta, GA 30309T 404.942.3369W cockrellgroup.com