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Is Your Hedge Fund in Danger of Being Dropped by Clients? How to Retain Investors and Improve Customer Relationships

The following article originally appeared on the Tabb Forum on June 26, 2015 and was written by Brian Macallister, managing director, Ledgex Systems.

Keeping investors consistently happy (and loyal) is more difficult than it was seven years ago. The 2008 crisis left investors wary, requiring hedge funds to increase transparency to retain clients in an increasingly competitive market. Here are 3 questions to help you assess whether your hedge fund is in danger of being dropped by clients.

No one likes to get dropped. The departure of investors from a hedge fund could produce rippling waves of change throughout the organization and ultimately leave the fund in a less secure position than if investors had remained in the fold. Keeping those investors consistently happy (and loyal) is more difficult than it was seven years ago. The crisis of 2008 left investors wary, requiring hedge funds to increase transparency to retain clients in an increasingly competitive market.

Firms need to evolve to remain relevant, and they must progress into a new era of communication to keep investors happy, engaged and informed. To assess whether your hedge fund is changing along with the times or is in danger of being dropped by clients, answer the following three questions:

1. How strong is the relationship between your firm and its investors?

In most instances, strong relationships produce stronger results. In this vein, the relationship between investor and firm is paramount to retaining investors over the long term. In the same way that you wouldn’t purchase a product from a company you didn’t trust, investors will not invest in a firm they do not view as trustworthy. The best way to create that trust is by cultivating open communication channels with clear visibility into the various sectors of investor relations, fostering the kind of trust modern-day investors are looking for in their hedge fund connections.

In order to achieve this investor confidence, firms need the ability to layer client relationship management (CRM) data onto data gained from investor relationships, such as the duration and frequency of communication between the firm and the investor. Firm communications should be as much of a factor in the investor relationship dynamic as reviewing an investor’s portfolio history, reporting documents and capital activity. This allows the firm to increase relevant, frequent communication with its clients and streamline investor relationship management(IRM), effectively strengthening investor relations.

2. Would you consider your organization’s hedge fund management transparent and open?

Producing quality investor relationships may hinge on trust, but trust hinges on transparency. In order to foster positive customer relationships – and avoid getting dropped by investors – hedge fund firms should consolidate the tools they use to produce investor statements in order to reduce communication errors that lead to lack of trust.

Using various tools, such as Excel and simple CRM, producing mailings and K1s can lead to lapses in communication that create investor unease. These lapses are largely produced from a lack of visibility into investor preferences. For example, investors often vacation or commute from different locations around the world, but they expect uninterrupted reception of all communications. Furthermore, investors now expect increased reporting, making the prompt delivery of information more important than ever. Solving this issue through the use of one integrated, advanced CRM system could mean the difference between the departure of an investor and a referral for more clients.

3. Are your investors happy with your performance?

Like most things in life, investor retention boils down to one question: Are your clients happy? If an investor isn’t happy with a firm’s performance, there is no reason for him or her to continue with the organization. Even the most communicative, transparent firm can’t always keep an investor from walking away; but encouraging open discussion and providing accurate reporting can act as preventative measures for inevitable, but sporadic, performance lows. Understanding the full scope of an investor’s history and portfolio can help a firm provide personalized, accurate and informed service to investors during periods of doubt.

Performing a quick assessment of your organization using the above questions lays out the areas in which your firm may be lacking and others in which it excels. Insight into an investor’s history and expectations provides firms with the information needed to grow their business through precise targeting, retention and upsells. The ability to view all relevant information in one location provides firms with the necessary tools to create strong investor relations and help prevent them from being dropped.


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