Investor relations professionals are finding it challenging to secure clients as investors continue to pull billions of dollars out of hedge funds.
Attracting prospective investors was the most-cited challenge in a survey of marketing and investor relations professionals by IR software provider Imagineer Technology Group and Hedge Fund Research.
The survey’s respondents work primarily in the alternatives industry, with 89 percent reporting that their firms offered hedge fund products. However, the survey also included staff at private equity, venture capital, and traditional asset management firms.
Regardless of firm size or assets under management, luring investors was seen as a top challenge by survey respondents. In the hedge fund industry, these challenges are further evidenced by five consecutive quarters of outflows, amounting to $62 billion redeemed by investors on a net basis between April 2018 and June 2019, according to HFR.
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“Managers who find it a struggle to attract capital stated reasons like difficulty reaching the right investors, offering enticing solutions, and articulating the fund’s value proposition,” the report stated.
Other challenges cited by survey respondents included the ability to retain and manage staff, managing processes between internal teams, and communicating with fund administrators.
Limited bandwidth was the top challenge reported by staff at firms managing $1 billion to $5 billion, who represented about 30 percent of total respondents. These firms have an average of three investor relations professionals on staff — a number that has remained stagnant over the last year despite salespeople’s concerns about their lack of bandwidth.
The only firms to add IR staff over the last year were the largest investment shops, those running $5 billion or more. Their average headcount more than doubled year-over-year from five to 11. Even among large asset managers, however, bandwidth was still cited as the No. 2 challenge for IR staff — their No. 1 challenge being anticipating investor needs.
According to the report, asset managers are responding to fundraising challenges and an increasingly competitive marketplace by developing more proactive investor relations strategies. Emerging and mid-sized managers — whose small IR teams “often take on fund marketing, IR, and operations roles” — said they emphasized frequent, transparent communications to “build trust early on with their investors and share as much detailed risk and portfolio information as possible,” the report stated.
Meanwhile, firms with larger IR teams reported that they have devised “targeted strategies based on geographic regions, investor types, and investment products to win new capital and foster existing investor satisfaction.” In addition, 28 percent of respondents said they have implemented client segmentation, customizing processes and service models based on investor qualities like size and client type. For instance, they have become more hands-on in onboarding high-net-worth investors or offered discounted fee structures in exchange for institutional capital.
“Of course, to successfully service these specialized offerings, the IR, investment management, and fund marketing teams all have to agree with the determined segmentation strategy and must have the people power to support it,” the report stated. “Accordingly, those respondents with client segmentation strategies have, on average, two more IR teammates compared to the average headcount of this year’s survey participants.”