Advice for optimizing your engagement with the hedge fund community
While undeniably presenting a number of challenges for IROs, the hedge fund community also offers many opportunities for building significant and long-term connections. We examine how IROs can foster healthier relationships with this segment of the buy side.
When it comes to challenges, hedge fund investors present a unique set of factors that need to be considered, as Darin Norman, senior IR analyst at Xcel Energy, notes: ‘One of the challenges in dealing with hedge fund [people] is that they tend to ask more detailed questions and get deeper into the weeds than typical long-only institutions.
‘Additionally, their positions – long or short – are generally less transparent, which can leave IROs in the dark. They may have a negative tone if they have a short position or are looking to initiate one, and it may require more homework to determine their suitability as a long-term shareholder.’
Chris DeNigris, solution marketing director at FIS, has observed many changes in the hedge fund market over the past few years, particularly around how funds and investors interact. He offers the following advice for IROs to maximize their engagement with the market:
1. Be proactive, not reactive: To keep up with increasing investor demands for more transparency, IR teams should anticipate the questions prospective investors might ask or the information current investors might want on a recurring basis. Having these reports ready when asked, or even sending out this information on a regular basis, is becoming standard practice for IR teams.
2. Use targeting when marketing: When marketing to potential investors or upselling current investors, use the sniper rather than the grenade approach. Remember not all investors’ desired outcomes are the same, so customize your messaging for different investor segments.
Establishing solid relationships with the hedge fund community can reap rewards, Norman adds. ‘As hedge funds have grown over the years, many IROs have rethought or even changed their approach to dealing with them – despite their challenges, hedge funds can provide IROs with unique perspectives and insight,’ he says. ‘One of our top 10 shareholders is a hedge fund that has been a significant investor for quite a few years. We are very responsive to its inquiries and interact with it on a monthly basis.’
Pointing to his similarly positive experiences, Marty Palka, chief intelligence analyst at Cisco Systems, concludes: ‘Hedge funds can share useful insights into the views of your stock, competitive positioning and other factors impacting the industry and the market. It’s crucial to set respectful expectations about levels of engagement and develop open and honest communications.
‘For us, Citadel and other hedge funds at times have taken positions that are longer term and some hedge fund managers have made career moves to high-quality, long-term investment firms, continuing the benefits of a strong relationship.’