We have recently published our latest piece of research into some of the "softer" elements of private markets: How is working from home working out? ( https://www.mjhudson.com/download/how-is-working-from-home-working-out/)
Inside, you'll find a host of datapoints and some (we contend!) insightful commentary on the impact on communications and wellbeing for private funds pros, during the current pandemic. And whilst there are plenty of interesting aspects to the report, I want to draw your attention, today, to just one, because there are important implications for anyone trying to raise capital and build stronger relationships with their investors.
The big question
As part of our research, we asked more than 100 LPs to indicate their level of agreement to the following statement:
"The way that managers communicate with me during the current COVID 19 situation will have a lasting impact on how I view them"
A whopping 80% said that they agreed. And well over a third of those said that they "strongly agreed". Looking at the data from a regional perspective, we can see that the proportion of LPs in North America agreeing with the statement rises to 90%. Naturally, this means it is lower in the other regions, but it still hovers around the mid to high 70s. If you somehow thought it wouldn't matter how you communicated with your investors, right now, here is the evidence that you were, well, wrong.
Silence isn't golden, but just talking isn't enough
I have never been an advocate of the "bury your head in the sand" school of communications. This means saying something. However, in this article, we are not going to cover what you should be saying (and the preparation required to be able to say it). That depends a good deal on your particular situation and, in any case, we covered this, briefly, in a previous post: We need to talk about COVID-19 (but we may not be sure how) - https://www.mjhudson.com/newsletter/we-need-to-talk-about-covid-19/. Yes, "it's good to talk", but we need a more nuanced approach, which we'll look at, now. There is one other important element that we will need to look at, after that, but first, a few pointers on how to communicate with your investors.
The WAY that managers communicate with me.
LPs responded to us not on whether a manager communicated with them but, rather, the way that they did. High-quality communications always stay true to three guiding principles:
- Timely (from both an absolute and relative perspective)
- Timely: Investors should always feel that you are communicating information in a prompt manner (timely, from an absolute perspective) and they will also want to feel that they are (among) the first to know (timely, from a relative perspective).
What to do: Make sure that proper communication plans and systems are in place, so that any delay to communicating important information is strategic, rather than as a result of poor processes.
- Consistent: In investor relations, changing your mind is OK, but it usually comes with a penalty. Particularly in times of greater uncertainty, it is important that the communications coming from your firm feels reliable and confident.
What to do: For each portfolio company and, separately, for your own firm, keep a "house view" log of the opinion-based statements (which can include the interpretation of current events and historical data, as well as forecasts) that you have made to your investors and make sure you have a very good reason for changing your view, if you need to.
Insist on maintaining tight control over who says what to whom. One indiscreet Zoom call can undermine weeks of carefully planned communications, so make sure that your log of the "house view" on important topics is communicated to investor-facing staff, and ensure you have the authority to hold team members accountable if they do not stick to the script.
- Respectful: It is also important to remember that you are likely not the only manager communicating with each of your investors. There may be hundreds. This means that you have to be respectful of your investors' time and be honest about the importance of your communication. Drawdown notice > CFO appointment in the portfolio > corporate charity event. In addition, you will want to make sure that your investors can quickly catch up on any firm, fund, or portfolio news that they may have missed, so signpost this clearly.
What to do: Pay attention to the communication channel preferences of your investors and respect them - send them information in the way that they prefer to receive it and keep in mind the relative importance of what you are sending from the investor's perspective. Are you telling them this because you want them to know or because they need to know? The former is worth a follow-up call to make sure the information has been received, the latter is not.
In order to be most helpful to your investors, it is a good idea to create separate push and pull mechanisms for your communications. Done right, this means that your investors will know they can rely on you to provide timely alerts on anything that needs immediate attention and that they can also easily find information they are looking for in a self-directed manner.
And finally, to get to the title of this piece: listening.
Ultimately, the quality of your communication should be measured not by what has been said but, rather, by what has been heard, understood and processed. If you think for a moment about any useful conversation, talking is only 50% of the equation. And, by the way, the most important word in the first sentence in this paragraph is not "heard", or "understood"; it's "measured". Listening in IR means monitoring, measuring and optimising.
If you do not measure your communications, you are going to fall behind.
There are two key areas to focus on: engagement and impact.
Engagement measurement looks at things like email opens, web visits, video views and so forth. On a holistic level, it can tell you which communications are being received, read and what your investors do next. It can provide useful inputs into how to better craft your messages and the best ways to deliver them. Engagement measurement needs to be run constantly - let me know if you want to know more.
Impact measurement looks at how your communications and other activity has changed, for better or worse, the perception of your firm. An LP perception study is a great way to understand how you are perceived and if repeated at regular intervals can provide feedback on specific events and your communications. You can find out more about perception studies here ( https://www.mjhudson.com/expertise-single/perception-studies/) or in this earlier article: How are we perceived? 5 reasons to ask this question ( https://www.mjhudson.com/newsletter/how-are-we-perceived-5-reasons-to-ask-this-question/).
Originally published May 27, 2020 .
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.