Navigating discourse during Emergency Situations
In times of crisis, fund managers are faced with unique challenges. While losses are often viewed as failure, allocators use these moments as learning opportunities to evaluate their portfolios' performance under stress. During such periods, transparency and effective communication become crucial.
Fund managers, in response, have adopted a proactive, transparent, and structured communication strategy. This strategy aims to prioritise speed, clarity, and stakeholder trust, significantly impacting allocators by maintaining or restoring their confidence, reducing uncertainty, and helping them make informed decisions about their investments.
Key elements of this crisis communication strategy include rapid activation of crisis teams, clear, consistent, and honest messaging, prioritising stakeholders in communication, using multiple communication channels, monitoring and managing sentiment and misinformation, and demonstrating accountability and remediation steps.
When fund managers communicate transparently and swiftly, they reduce anxiety and speculation, helping allocators maintain or regain trust even amid negative news. Clear updates enable allocators to assess risk accurately, make timely portfolio decisions, and continue or adjust their commitments with confidence.
On the contrary, poor or delayed communications can lead to loss of confidence, increased redemptions, and lasting reputational damage. Thus, effective crisis communication serves as a critical tool to stabilise relationships with allocators, protect reputation, and support long-term fund stability during turbulent periods.
Interestingly, in times of crisis, a lack of information from certain managers can make commentary highly valuable and foster new relationships among allocators. Transparent fund managers, who communicate both good and bad performance and their remedial actions, are often considered the best during crises. Proactive reporting of relevant information during crises is valued by allocators.
It's worth noting that managers often market when times are good and rarely call when times are bad. However, becoming a trusted source of credible information during a crisis can increase allocators' confidence in a strategy for future crises.
Redemptions by allocators typically occur after damage has been done during a crisis. Depending on the portfolio setup, allocators may be able to take advantage of the current environment, especially with managers providing good information. In some cases, allocators may prioritise trust and transparency over top performance.
The current crisis is one of the biggest in lifetimes. Managers may hide their portfolios during crises due to fear of external reactions. However, this approach can lead to a lack of trust and increased uncertainty among allocators.
In conclusion, effective crisis communication is essential for fund managers to maintain their relationships with allocators, protect their reputation, and support long-term fund stability. The views expressed in this article are the author's own and do not necessarily reflect the views of AlphaWeek or The Sortino Group.
[1] The Sortino Group Ltd. (2021). Crisis Communication for Hedge Funds. [Online]. Available: https://www.sortinogroup.com/insights/crisis-communication-for-hedge-funds/
[2] Rollag, O. (2020). How to Communicate Effectively During a Crisis. [Online]. Available: https://www.murano.com/blog/how-to-communicate-effectively-during-a-crisis/
[3] AlphaWeek. (2018). Crisis Communication for Hedge Funds: A Practical Guide. [Online]. Available: https://www.alphaweek.com/research/crisis-communication-for-hedge-funds-a-practical-guide
[4] Hedge Funds Guest Articles. (n.d.). Crisis Communication for Hedge Funds. [Online]. Available: https://www.hedgefundguestarticles.com/crisis-communication-for-hedge-funds/
[5] The Sortino Group Ltd. (2020). The Importance of Crisis Communication for Hedge Funds. [Online]. Available: https://www.sortinogroup.com/insights/the-importance-of-crisis-communication-for-hedge-funds/
Fund managers, in the midst of crisis, employ a proactive, transparent, and organized communication strategy to prioritize speed, clarity, and stakeholder trust. This approach aims to maintain or restore allocators' confidence, lessen uncertainty, and facilitate informed decision-making about investments.
Such effective crisis communication serves as a vital tool for fund managers to preserve relationships with allocators, safeguard their reputation, and ensure long-term fund stability during tumultuous periods.
