Posted by Cognito on Fri, Nov 07 2008

All Posts by Cognito

Hedge Fund Communications III

As this blog has noted before, in times of high performance hedge funds could get away with their trademark silence. In today's market, funds are quickly discovering how necessary transparency and disclosure to both investors and the media truly is.

A positive example of proactive communications came from Blue Mountain Capital Management (BMCM). From a communications angle, BMCM did two things right this week:

  1. In the face of unprecedented outflows, BMCM Founder and CEO Andrew Feldstein wrote a letter to investors outlining revised terms for their funds. Striking a quid pro quo, investors agreeing by November 11th to hold their money with BMCM through 2009 will pay lower fees through 2010. This was a clear way to explain to investors that the stability of capital is directly correlated to both the stability of the fund and investor returns in these times of volatility. To be sure, BMCM is only down 2.4% in 2008. Investors - many fund of hedge funds and pensions - pulling out of performers such as BMCM are reacting to both irrational fear and the need to liquidate holdings to post collateral and hold cash. With BMCM, this activity is shown to be indiscriminate. Clearly a large and stable fund such as BMCM deserves better than to have 25% of its capital withdrawn by investors.
  2. BMCM agreed to interview with WSJ during these pressing times. Instead of hiding and fanning media suspicion over the root of such extensive withdrawal requests, i.e. projected dire performance through Q4, CEO Feldstein spoke with the WSJ, discussing pandemic investor fear and the cycle of withdrawal while reassuring the health of the fund and the dependable cash positions held currently. By taking these actions BMCM is effectively fighting back what has been a self prophetic cycle of fire-drill selling amongst the investment community, driving down capital, prices and sentiment and resulting in a lack of will to provide the capital and credit our global economy needs to function.
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