Avoid “Guilt by Association”
The US attorney-led investigation into recent insider trading activities implicates numerous hedge funds. The large newspapers provide daily coverage with business section headlines such as “Holdings Spiked Near Deal-Time.”
Many will read headlines like that daily and say most hedge funds cheat. That’s not true. And hedge funds that don’t cheat should actively discuss this with clients.
Plain and simple – if you choose not to address a message, you’re leaving interpretation up to someone else. Here are two topics to consider sharing with clients & potential accredited investors.
- Investment Process – Reiterate your fund’s investment process and discipline. Then speak – in specific terms – to how your process is incompatible with insider information.
- Audit Controls – Present the audit process used by you and your third-party auditor. Then detail that the auditor is instructed to inquire about irregular trading and abnormal portfolio holdings.
Nothing assuages the most cynical investor. Yet for the overwhelming majority, these ideas and similar ones will set investors’ minds at ease and enable your firm to own the conversation. That’s a more favorable position than waiting for questions to come in.