The Science of Investor Communications

The importance of a good investor relations platform

HAMLIN LOVELL

Old-school salespeople may rely on gut instinct when sussing out prospects, but we now live in a big world where it is not always practical for a small team (or even one individual) to keep up a rapport with thousands of potential clients. “Many hedge funds do not think enough about their communications strategy but there is a whole science behind building long term relationships,” says Alok Misra, CEO at Navatar, the investor relations platform used by alternative asset managers. Marketing and investor relations teams need to categorise contacts into an investor intelligence centre; use targeted segmentation to prioritise schedules for making contact; keep abreast of allocator news, changing staff and strategy preferences, and use all of this and historical allocation patterns to inform outreach, while also maintaining controls on the security of confidential data and documents. They may need to do all of this ‘24/7’, anywhere on the planet.

Categorising investors: How to build your very own LP intelligence centre
KAP Group co-founder and CEO, Jennifer Aleman Hutter, advises fund managers on communications and marketing, and was a placement agent in her former job at Credit Suisse. “It is not cost effective for all managers to build an internal IR team right away. Outsourcing the IR function can free up time for the team to focus on investing,” says Hutter. That said, many KAP clients do have an in-house IR function that dovetails with support from KAP Group.

Actionable intelligence ranking top investors by how much they invested into which types of strategies and investments can be used to classify and categorise prospects, building up a profile that can also be integrated with data from sources, including Preqin and PitchBook. “It is rare to find an investor who has no history,” says Hutter. It is also unusual to find an investor that stays with the same asset allocation, strategy preferences and manager selections indefinitely, which is why it is critical to keep abreast of the news.

Using investor news developments to your own advantage
There is no excuse for not gathering news when abundant public information exists on allocations made by many of the largest investors (and private data can be ascertained by those with the right network of relationships). “We collect news weekly, from trade publications and direct conversations with investors, and catalogue it into Navatar. Compiling information in one place enables us to provide comprehensive intelligence to clients,” Hutter explains.

Drilling down to the next level, it is possible to track individual allocators as their career progresses through different employers. The usual assumption is that allocators will behave as they did in the past, but if liquidity constraints have changed this may not hold.

Prioritising contacts: Executing a tailored LP communications strategy based on targeted segmentation
“There needs to be a framework for determining how and when you reach out to investors,” says Ketan Khandkar, COO at Navatar. The first stage is to work out which investors to make contact with, targeting and identifying the right investors, based on data such as their existing investments and strategy preferences. “This is more actionable as it is a more intelligent list,” says Khandkar.

An email may be the first mode of contact and responses can be swiftly collated into a status report, showing which investors are invested, committed or still to decide – and which have not responded or declined the opportunity. Reasons for declining the investment can also be logged, which in turn allows for a more refined and granular categorisation of investors in future.

Navatar’s secure data room for sharing documents is primarily motivated by security imperatives, which we will discuss below. But the data room may also yield clues that could inform assessments of allocation probabilities. “Everyone who logs into the data room is tracked with logging,” points out Khandkar. Monitoring who looked at which documents − such as articles of association, offering memorandums, due diligence questionnaires or financial statements − may help to gauge the sincerity of their intentions – or at least give some feel for their sense of urgency.

Analysing past fundraises to fine-tune future investor outreach strategy
“Tier A investors are the top segment, who might warrant being contacted every two months based on their existing investments or dry powder. For other tiers of investors, the frequency might be every four or six months,” Khandkar illustrates. For example, Hutter is on the hunt for ‘early bird’ investors who are prepared to take the plunge into a new offering. “Tier A investors are the first closers and the firm’s strongest supporters. The aim should be to close the top five or ten investors within three months,” she explains. Those on Hutter’s B list might prefer to wait until key fundraising milestones are achieved or certainanchor investors are secured before committing to the fund. “Tier B are good prospects but are more motivated after first closes,” she adds. The C list investors, Hutter continues, “are not likely to make it into a final close, but should be kept warm for the next fund. The manager should continue to nurture its relationships with these Tier C investors.” Indeed, the prioritisation process should not discard these slow burners who may blossom into long term relationships with some coaxing and hand-holding. “Many managers do not follow up with those who do not invest, though they can be warm prospects for the manager’s successor fund,” Hutter has found. “It is important to maintain dialogue with prospective investors, for example, by sending them a regular newsletter to pique their interest in the fund. If you are silent for two years between fundraises, you start from ground zero when you approach the market again,” Hutter observes. Some investors may feel they have been given the cold shoulder.

The reality is that however red hot a prospect may seem at first sight, due diligence timespans are extending as the credit crisis has made due diligence more time consuming, both for investor-led reasons and due to regulatory complications. “In 2005-2007, the fundraising process had shorter cycles but now nearly two-thirds of raises take more than 12 months, and many extend as long as two years,” Hutter observes. Still, some useful generalisations can be made. At one end of the spectrum “the low hanging fruit is a referral from an existing investor,” Hutter finds, but “cold calls are incredibly tough”.

Relationship management
Hutter tends to favour sending a concise one page ‘teaser’ to current or prospective investors, allowing those who desire more detail to request it. “If few prospects have the time to go through a 15-page investment committee memo, those who want the extra colour should be offered it as part of an open communications policy,” she says. Manager access also matters. “The ability to call a manager to ask for market advice is important, allowing you to further cultivate your relationship,” she adds.

KAP Group advises managers on organising investor meetings and once again Hutter counsels a somewhat measured approach. “An AGM is not necessarily the right venue for divulging too much new information,” she argues. There is some debate over whether investor questions should be addressed on a one-on-one basis or during an open call to which all investors can dial. A compromise can be to request questions ahead of time and then filter them down to those that are appropriate for a wider audience.

Whether investor identities should be anonymised during dial-ins – and whether, indeed, investors should meet one another in person – is another decision to make. “According to KAP Group investor surveys, the opportunity to share perspectives with other investors is a key reason LPs attend managers’ meetings,” Hutter points out. Managers may be wary of letting different investors compare notes but this could be surprising as any preferential terms offered to some investors should, generally, already have been disclosed under ‘most favoured nation’ conventions and regulatory stipulations on disclosing side letters.

When and if to visit investors on their own territory is another important question for time-constrained managers. Navatar can help as investor lists can easily be narrowed down by locations, such as New York-based investors or those on the West Coast. Navatar even has a maps function that lets managers plan driving stops, routes and directions. Hutter finds that “really bad news justifies jumping on a plane to make a personal visit”. She recalls how investors in a real estate fund that experienced volatility during the crash of 2008 appreciated the in-person explanation – and some are still investors. “Building long term investor allocations is part of an ongoing process that does not end after the capital is raised,” she concludes.

Customisation and integration
The genesis of Navatar’s applications for hedge funds, private equity managers, funds of funds and placement agents was a consultancy project customising Salesforce to the alternative investment market. “Salesforce is designed for the standard sales process, so hedge funds would need to do a lot of customisation to adapt it to their needs, in terms of limited partners, subscriptions, redemptions and so on. Hedge funds have neither the time nor the resources to do this,” explains Khandkar. The application can be extensively customised to client needs both in terms of content and cosmetics.

The standard dashboard includes investor relations intelligence, marketing, and fundraising process, with default tabs being institutions, contacts, fundraising, pipelines, funds and reports. But this can be sliced and diced any way users desire, with additional labels and sub-divisions added.

Navatar can also be integrated with a growing range of other resources. It seamlessly integrates with Microsoft Outlook and Google Mail email systems, and can work with LinkPoint 360, an email to CRM integration system. It also meshes with databases including Preqin and S&P Global Market Intelligence. Other CRM-enhancing packages such as Conga can also be made use of. Some of these are already bundled into the cost, while others will involve an additional fee. For instance, in the social media space, Facebook and Twitter are included as standard, but LinkedIn now charges for integration. Aesthetically, the look and feel of templates can be easily changed with drag and drop functionality to add logos, fonts and other details.

Cloud
Navatar have been advocates of the cloud for over a decade. Misra has authored a book – Force.com as Your Key to the Cloud Kingdom – that sets out how firms can get the most out of the cloud. “Salesforce is the ideal platform as it is the most secure, and is completely cloud-based,” says Khandkar, who claims that “some of our competitors are still using legacy technology and have struggled to move to cloud”. He also perceives some competitors as really just consultants.

Business continuity
The cloud infrastructure has a healthy buffer of redundancy. “There are multiple servers so if one crashes it pushes onto another server,” explains Khandkar. Navatar were early movers in the cloud world since the firm was founded in 2004. “Much explanation and education was needed in the early years. As a proprietary cloud is a big challenge, we have identified the best of breed cloud infrastructure and leveraged best practices. We leverage Salesforce and Box Clouds for data storage, sharing and security, with our own IP on top,” Khandkar points out.

Security
Cybersecurity is the biggest threat to the financial system, according to the SEC. Navatar allows security to be maintained in various ways. External communications can be watermarked and tracked with access to certain documents restricted. Lists of investors and communications also need to be kept secure. Watermarking can take many forms, including “using email addresses, IP addresses, firm names and dates. Each investor may have their own login ID and password,” says Khandkar.