So, my daughter just accepted a role as a managing editor at her college newspaper. When I called to congratulate her, she sounded pretty anxious, “Well, you know what they say about running a newspaper, right? The managing part is easy. It’s the coming up with something interesting to say every single day part that’s hard.”
Her comment got me to thinking, what would your typical hedge fund manager do if he or she were forced to say something interesting on a regular basis?
I realize that there are a lot of managers that do provide commentary, often in the form of the month-end letter. I’m not downplaying the value of that. After all, investors do need to understand what drives investment decisions and performance.
But I am talking about saying something that’s actually interesting. You know, something that even non-investors would want to give more than just a cursory glance.
Let’s face it – the hedge fund allocation process is a dance. And a slow, awkward dance, at that. Kind of like that one you had in 7th grade where all the boys sat on one side of the room and all the girls on the other. And everyone just watches one another hoping someone else makes a move.
The difference here is that one group (we’ll call them, the “managers”) is constantly soliciting the other (the “investors”). Managers often start off aggressive and energetic but tend to lose momentum over time. They interpret non-responsiveness as a tacit “no” rather than just part of the courting process.
The thing is – while they are inundated with would-be partners and can’t humanly spend time on every potential suitor – there is little career-upside for a professional allocator to turn a manager away completely. So, rather than doing so, they prefer to just watch.
I am pretty sure that “I’ll watch” is one of the first phrases taught in “investor school.”
So, this being the reality, a manager ends doing one of two things – he or she either moves on to the next prospect, or sticks around and monologues at the investor until receiving a more substantive response. The question for those persistent enough to grind it out is, “What should you monologue about to spark a discussion, or at least remain top of mind while the investor watches?”
Sure – regular performance updates are helpful. However, since everyone else provides them, as well – and many of those managers also have outstanding returns, they’re probably not enough on their own to progress the conversation (unless of course, you still think that performance is the only thing that matters).
That means that you have to find other things to say. The good news is that there are lots of ways to add value while also being interesting, despite the myths floating around, you don’t need to be a directional manager with a specific investment idea or controversial market opinion to get attention.
One of the easiest approaches is to pick a theme that is of particular interest to you – or maybe one that best represents how you think about the world and own that topic.
It doesn’t need to have anything to do with your specific fund at all.
Just spitballing, but as an example, quant managers can talk about trends in AI, or common factors that create limitations for machine learning systems. Or maybe considerations that distinguish a legitimate back-test from one that is curve-fit.
A credit manager or specialty lender can share observations related to changes in covenant standards for risky borrowers. Or maybe how they would interpret changes in credit spreads.
An equity options trader can provide trends in dividend expectations for a particular sector, or highlight unusual trading activity (it doesn’t always have to be about the VIX or skew).
The point being there is informational content in pretty much every investment discipline. Any of which can have broad application to an investor’s everyday decisions.
The benefit is that if you talk about it enough, you will eventually be considered the go-to source. Even…the man.
And who doesn’t want to dance with the man?
By JD David