ClaritySpring was born out of my frustration as an institutional hedge fund investor.
My team and I met with hundreds of hedge funds on behalf of our family office clients. Often, we left those meetings incredibly impressed with the clever strategies, colorful personalities, and unique perspectives on the market from many of the talented hedge fund managers we encountered. We had questions, but we were excited to get closer to the funds and after those initial positive contacts and thought through which clients would feel the same.
After that first impression, something subtle would often happen that would weaken our interest and usually end with the kiss of death, AKA “put me on your distribution list”. I want to highlight what goes wrong after those great initial meetings so that managers can easily capitalize on growth opportunities.
Investors look at funds as a business, and a business with a great idea is nothing without a structured process to monetize that idea. When key areas of the business lack process it suggests to investors that the rest of the organization has holes as well. Investor relations is a critical function of the hedge fund business, and the IR process for 95% of hedge funds we met with was abysmal.
One early red flag was that many funds would send critical due-diligence documents over email, which was both unsecure and disorganized. We would rarely receive the complete set of due-diligence documents in the first email, and have to ask for more documents by name. Each new document would open up new questions, which would have to be answered with yet another request for more documentation or follow-up calls. As the process dragged on, simple unanswered questions would give way to doubts, which ultimately created doubts about the manager and their ability to run the business. Once that trust was compromised it was almost impossible to recover. Unknown to the managers, this process silently played itself out over and over again.
The unfortunate thing is that many of those funds which lack clear IR processes were probably excellent at executing their investment programs. Regardless, they were uninvestable to us because of our experiences communicating with the fund.
The reality is that investor’s opinions are formed by the limited interactions we have with managers, and it’s critical that those interactions convey the professionalism of a well-run business with institutional quality processes in place. The funds we ultimately invested in were never perfect, but they earned our trust with clear, consistent and organized communication about their business.
We built ClaritySpring to help managers implement effective communication, investor relations, and due-diligence processes so they can focus on making great investments. Our mission is to make the hedge fund investment process efficient for both managers and their clients.
I am always open if you have questions, comments or if you just want to chat about the industry.
Nate Anderson, CFA, CAIA