Companies seeking to expand their investor base these days often face a tough question with no single correct answer: Should senior management make time to meet with hedge funds?
While the question understandably draws yawns from those outside the world of investor relations, it is regularly discussed, even debated, among IR practitioners. One side argues that hedge funds are short-timers looking to make a quick buck with little interest in the long-term prospects of a company. In the other camp sit IR pros who contend that hedge money is green just like everyone else's. They say ignoring these funds is to be blind to the investment community's new realities. Let's face it, this camp adds, today there are hundreds of hedge funds that manage billions of dollars.
Both sides are right, of course. If the answer was obvious, there wouldn't be any debate. Yet, savvy practitioners recognize that the answer depends on the individual company and its specific situation. Larger, in-demand companies can take a stronger stand toward hedge funds that are not current holders and avoid them. Smaller and midsize ones have less flexibility because they are eager to grow the investor base.
The issue most notably comes to the surface when a company's senior management is planning a non-deal roadshow or attending an investor conference and must decide how best to use its time. For instance, let's say that the number of requests from hedge funds is more or less equal to those from traditional investment firms. The fact is that some management teams maintain an ironclad rule that prohibits meeting with hedge funds. Period.
However, I'm not sure such an unyielding approach necessarily helps a company. While the time horizons of some hedge funds are usually shorter than the shelf life of cream, these days there are certainly a wider variety of such funds with different approaches. At the same time, many traditional funds or money managers now also face shorter time horizons for positive results and have stepped up the pace of portfolio turnover.
My own approach is to take a closer and open-minded look at all those who request time with senior management and I come up with recommendations after researching each fund, hedge or otherwise. Using one of the many electronic tools available, I examine a fund's annual turnover, assets under management, current holdings, and investment approach. I don't let the fund's label bias me. Rather, I let the facts point me in the right direction. What I learn usually surprises me.
Rules of thumb certainly have their value, but when it comes to building an investor base, it's best to avoid a knee-jerk reaction and take a moment to look beneath the surface. If you do, you might realize the waters are not only filled with sharks.
Fred Bratman is the president of Hyde Park Financial Communications. He can be reached at email@example.com.