Hedge Funds Review European Single Manager Awards 2016
Increasingly seen as one of the most essential elements of a hedge fund business, investor relations teams across the industry are taking on more duties and responsibilities.
A prime example of this is the investor relations team of Old Mutual Global Investors (OMGI) led by Donald Pepper, managing director of alternatives and institutional. Pepper joined OMGI nearly four years ago when the alternatives unit had a mere $480 million of assets under management (AUM). Since then AUM has increased 16-fold to more than $8 billion.
This rise in AUM was mainly due to improvements made in the operations led by the investor relations team. When Pepper arrived he wanted to make sure there were no structural impediments for investors. One of his first goals was getting OMGI ready to sign up to the Hedge Fund Standards Board standards. To meet those requirements, changes were needed, such as engaging more prime brokers to spread counterparty risk, ensuring all investors received clear and reliable reports on the funds and could understand the information they received.
The idea, says Pepper, was to ensure there were no impediments when an investor undertook due diligence. Meanwhile, working with Maria De Simone, Robert Rostkowski and, more recently, Francesca Fogarty, who make up the alternatives sales and investor relations team, he set about finding out want investors really wanted.
This "capital intelligence" is around fulfilling the needs of investors. As none of the team is paid on commission, they can afford to be long term in their thinking and cultivate close relationships with investors who are already invested or interested in the fund selection available or who might in the future be looking for one or more strategies offered by OMGI.
Keeping relationships alive is easier when an institution is invested, says Pepper, through quarterly or monthly updates. "We try to be as systematic as possible to reach out on a regular basis with updates," he says.
Another important aspect of a good investor relations team is that it knows the portfolio managers well and the fund strategies in intimate details. "We get very good transparency," says Pepper. "We get monthly updates on how and why positions are taken if it is a discretionary manager, but we can also approach them at any time. We are in a lucky position as we attend review meetings and keep current by participating in those."
Pepper and his team understand there is a fine line between investing in the manager and access to the manager. When to allow investors access to a manager is a judgement call that comes with experience, says Pepper. "You just know instinctively. There are some times of the day you don't speak to the portfolio manager, like during trading. Normally, day-to-day, we should handle the more complex interventions but the portfolio managers are very accessible," says De Simone.
Another aspect of the team's job is educating Old Mutual, an international investment, savings, insurance and banking group with more than £327.9 billion of funds under management and basically a long-only business when it comes to fund management.
Running a long-only, mainly retail business means the alternatives side, where fund strategies are more complex, use a different fee structure and can go short, is a new world to most of the staff.
On top of this the team is also heavily involved in the due diligence process. "We need to make sure the investment due diligence doesn't race ahead of the operational due diligence. We have to be timely in providing information, be proactive," notes Rostkowski, adding: "We are also all heavily involved in all the due diligence meetings as well as the annual ones."
In general the team needs to be aware of all compliance issues and make sure the in-house legal team is, too. This is particularly important when marketing funds. Presentations, for example, need to be tailored to specific geographical areas.
The whole area of investor relations continues to evolve but one of the most challenging areas remains communications with investors. "Clients expect so much more now. They are entrusting us with money and it is a massive responsibility," says De Simone. "No matter how small the investor, everyone needs to have information continuously delivered, the level of transparency they need and kept up to date on the funds. We need to keep up to date with changing markets, a changing investment environment and make sure we give clients exactly what they need."
In addition to the more traditional duties, the team also keeps an eye out for new talent and strategies that will complement the existing fund range. By talking with investors, they discover what investors are really interested in and where they may be keen to invest money in future, what will fit into their portfolios. "By understanding what they are looking for and working with the cap intro teams, we discover who is most likely to be interested in any funds we offer now or in future. If we understand the need and we believe we can meet it, then we engage with them," says Pepper.
This is also part of client retention, something De Simone says is a "massive part" of what the team does. "When we try to cross-sell, we have gathered information on what's happening in the industry, what products we are launching," says De Simone. "It's usually such a good relationship they tell us who might be interested in one or more of our products. We're not just keeping assets, we are understanding what else we can help them with and what they are looking for."