The stakes are high for hedge fund managers as institutional investors across the country are ready to shake up the status quo. FundFire takes a close look at how investors have begun to take on lengthy reviews of their hedge fund allocations, many of them to make portfolio shifts, and reduce fees, but a few also to strengthen rosters or reposition toward new managers.
FundFire spoke with Lumentus Senior Partner, Christina Bertinelli, about how hedge funds can smoothly pass a client review. “Any time there’s a reshuffle there can be positives and negatives depending on what side of the table you’re sitting on,” says Bertinelli. She adds that no matter their performance, a proactive point of view, strong communication efforts, and good reputation management are vital elements for hedge funds looking to weather a review by an institutional client.
Reviews are not always bad news for managers. For example, the $403.5 million San Diego Foundation announced that it was so satisfied with its recently restructured hedge fund portfolio that it was actually eyeing more hedge fund managers. The surge of institutional reviews is not only shifting the hedge fund landscape, but will bring with it a host of new opportunities for some funds, and even possible redemptions for others.
Still, successfully managing an online reputation is vital for financial service companies as they go through client reviews. “Investors want to make sure that they’re not reading about managers in the New York Post – there is a type of personal quality that makes that distinction,” Bertinelli says. “Due diligence begins and ends with Google. If investors see a reputational risk, they’re not going to meet with them.”
Katsura Kikuzawa, a due diligence consultant at Decagon Advisors adds that the time for hedge funds to have the hardest conversations about risks and potential performance is during their initial due diligence meetings with an investor. “If hedge fund managers are targeted, there’s basically nothing the manager can do. If the institutions decide on redemptions, at that point it’s too late. Managers should communicate their strategy beforehand in the pre-investment stage. If the performance for whatever reason isn’t good for the investor, they should communicate as soon as possible and constantly,” says Kikuzawa.
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