Crisis Communications: New Tools for Reaching Clients in a Market Sell-Off
by Thomas Walek, CFA Institute
Recent market volatility has forced many hedge funds, financial advisers, and other investment professionals to again answer the question, “Are my assets protected?”
This question is at the center of any investor-adviser relationship, and now many advisers are realizing that “trust me” is no longer a sufficient answer. Investors, especially during significant market sell-offs, are demanding a more comprehensive response.
Phone calls and in-person meetings have long been the primary means of communicating with clients, along with letters and one-pagers intended to answer questions triggered by falling markets. This industry standard has given way to new tools for client communications, including video, white papers, media outreach, and social media. In diversifying the communications arsenal, financial firms are increasing transparency and improving the client experience in a strategic attempt to both retain and grow client assets during times of market stress.
What Should I Say?
Investors always want access and transparency, but never more so than during difficult market periods. Experience and logic suggest that clients of all types and sizes, when facing crashing markets and wild swings, want to know about fund and account performance and want more frequent communications. They also want reassurance about the strategy of the manager or the fund as well as updates on specific portfolio securities, the risk management impact, and potential new opportunities.
For qualitative insight into the investor-adviser dynamic, a new survey from the Investment Management Consultants Association (IMCA) — the professional and credentialing organization representing more than 10,000 members worldwide — highlights current trends in client communications. While the majority of IMCA members surveyed said clients responded to market conditions in a calm manner, some useful messaging and communication themes emerged:
- 78% of IMCA members said they are explaining that market declines are followed by advances and that, over the long term, the stock market generally grows.
- 65% said they are informing clients that downturns may present opportunities to invest at lower prices.
- Over 60% said they are reiterating the old investing adage that nobody can time the stock market.
- Over 90% said they are communicating with their clients over the phone.
- 77% are communicating with clients via e-mail, while 55% are doing so in person.
Bridgewater Fights with New Tools
But how do these new communication trends play out in practice? Some examples are in order.
Bridgewater Associates and its $70 billion All Weather risk parity fund have had a gloomy 2015, just at a time when many thought this investment approach would shine. Various reports indicate that the fund is down some 5% into September, triggering an $8 billion outflow of client assets. Bridgewater pioneered risk parity, a strategy focused on allocating risk, rather than allocating capital. As the driver behind this approach, Bridgewater is facing questions not only about All Weather, but about the risk parity approach overall. Critics are charging that risk parity funds weren’t just hurt by the late summer market swoon, but actually played a role in causing it.
In the face of this, Bridgewater made a series of strategic client communications decisions:
- It issued a client letter that generated significant media coverage.
- It reportedly issued a white paper designed to counter critics and alleviate concerns about the fund, its strategy, and its impact on the markets.
- It scheduled a one-hour interview with Bridgewater CEO Ray Dalio on Bloomberg TV.
- It published a LinkedIn post by Dalio, titled “Our Thoughts about Risk Parity and All Weather,” and distributed it to his 165,000-plus followers
Video and New Platforms
It’s not just challenging markets that trigger stepped-up client communications.
SkyBridge Capital, the global fund of hedge funds firm and always an innovator, was true to form when on 24 August 2015, the day of the biggest drop in equities prices in the recent slide, it published a seven-minute video featuring its chief investment officer (CIO), Ray Nolte. In a casual and basic “talking head” format, the video provided calm, reassuring content and market analysis that was accessible to the firm’s mix of high-net-worth and institutional client base. While not talking specifically about SkyBridge funds’ performance or activities, Nolte concluded the video by observing that recent market action was “noise” and “probably represented a good buying opportunity.”
New professionally focused communications platforms are also being used by fund management firms. One is such platform is Harvest, a virtual community for investment managers to access and provide content to target investors and clients. Harvest Exchange is a free public relations and marketing community, while the Harvest Private network offers firms the ability to share information, updates, and documents with a pre-defined group. According to Harvest, traffic on its network doubled during the August meltdown.
“Harvest offers the ability to allow for increased transparency and to do so on the managers’ terms,” said Peter Hans, Harvest’s CEO and co-founder.
Historically in times of market distress, Hans noted that managers are often on the receiving end of calls from nervous investors. But as part of a digital community, managers can proactively post updates and analysis that can help put investors at ease.
“A more comfortable and engaged client is a stickier client,” Hans said.
One Harvest member is Houston-based Voss Capital, a small-cap, deep value, long-short equity manager. To reach its investor base of fund-of-funds and high-net-worth investors, Voss typically uses quarterly letters, in-depth investment idea memos, and one-on-one calls. Increasingly, Voss is migrating these client communications to Harvest’s Private network.
“In August, we used the Harvest Private network to help us increase our transparency with clients, let them know we were doing okay, and the platform let us see which documents and information investors in our community were especially interested in reviewing,” said Travis Cocke, founder and portfolio manager at Voss Capital. “That transparency through the digital community meant it was much easier to share information and even helped trigger new allocations to our firm.”
Bridging the Gap
Investors are the lifeblood of any asset management operation, whether it’s a hedge fund or a small independent wealth manager. And in times of increased market turmoil and volatility, clear and consistent client communications are more important than ever.
Although many large firms like Bridgewater and SkyBridge have already taken steps to retool their communications arsenal, many smaller players may not have the infrastructure or resources to pursue some of these new tactics. Still, both large and small investment managers stand to benefit from revamping their approach toward client communications through the use of interactive platforms like Harvest and online channels like LinkedIn and YouTube, among others.
There is no one-size-fits-all approach that will apply to every money manager, but it’s clear that many investors are demanding an improved client experience. Forward-thinking managers will know to give it to them.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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