Reputation Matters
By Addleshaw Goddard LLP
Any investment management business depends on a reputation for honesty, integrity and acumen. But for hedge funds, this business school truism applies in spades.
Still seen by some in the investment community as inherently dodgy, the slightest whiff of impropriety on the part of a hedge fund, or even just the normal vicissitudes of the business cycle which might not raise an eyebrow in other sectors, can mean the redemptions start coming in.
Add to this the fact that on both sides of the pond, but perhaps particularly in London, the hedge fund market is a relatively close-knit community, often in close geographical proximity, and it is not difficult to see why even the most well-established and highly-regarded names in the business can find the value of their funds sharply reduced overnight as a result of reputational issues, whether real or illusory.
Huge damage can be caused not just by hard facts, such as an SEC investigation or a trade that went wrong, but also by unsubstantiated market gossip, perhaps put into circulation by someone with an axe to grind.
The challenge is to manage threats to reputation in such a way as to protect legitimate business interests without sending investors running for cover.
If the number of individual or institutional investors is small, it may be feasible to keep them informed and reassured on a personal basis. Or it may be necessary for the business to go on the PR offensive on a broader scale.
In some circumstances, it may be sensible to think about the legal options, for example where there is a clear and present danger of the firm’s reputation being undermined by the publication of false and defamatory material in the press, by the dissemination of scurrilous rumours online or in the bars of Berkeley Square, by the activities of over-enthusiastic competitors, or as a result of the scrutiny of a regulator.
Of course, it is not an easy balance to strike. The slightest whiff of legal action by a hedge fund is sometimes enough to raise concerns among investors, even if it is entirely in the right. Equally, however, if the situation is causing reputational damage, or has real potential to do so, doing nothing may not be an option.
Naturally, it is always preferable not to have to face the risk of damage to reputation. To some extent, that may be within the firm’s control. It may be that appropriate legal liability risk management measures can be put in place to avoid problems further down the track. These can vary from ensuring that documentation of legal agreements with traders, investors, prime brokers and other third parties is watertight, to the development of more sophisticated risk management processes.
If a problem arises, a business which already has a strategy in place to deal with threats to reputation is likely to be able to respond more rapidly and effectively than one which does not.
Preparatory steps might include the appointment of a crisis management team. Lines of command should be kept short and roles clear. Team members should understand the importance of deadlines - there is rarely time for leisurely debate or extended chains of approval. Nor does the media respect time zones. Decisions may have to be made in New York or London even when the other is offline.
Staff should be trained routinely to report potential trouble spots to the crisis management team. This is a separate issue from compliance. What may be of great interest to the compliance officer may be of little interest to the media, and vice versa.
Employees should know who is authorised to communicate with the press. Journalists are often adept at eliciting information from those inexperienced in dealing with them, particularly after a glass or two.
Every case will be different, but the strategy will need to be updated even if no crises erupt. As the market develops, as investor profiles change, and as the interest of regulators waxes or wanes, different strategies will be required. Inevitably, it is easier to develop a successful reputation management strategy, with or without the assistance of external professionals, when all is calm, rather than when fire-fighting at a time of crisis.
David Engel is a partner at UK law firm Addleshaw Goddard, where he leads the HedgeDefence team, which acts for hedge funds in dispute. He also specialises in reputation management and has advised numerous companies and individuals in the media spotlight.
© Addleshaw Goddard LLP 2006
This article was first published in HFM Week
Strand Financial Develops Financial Brand Workshop
Litmus Advisory concentrates on 'Delivering Certainty', Credit-IQ is focused on being 'Vision Critical' and Landsbanki is all about ‘Lending Energy’. Clients are coming to Strand Financial for a clearly defined core essence. In other words, their brand promise distilled in the simplest, most single-minded terms: the phrase they most want to own in the individual client's mind.
The starting point is a new style of interactive Financial Brand Workshop, which covers mission and vision, brand pillars, key messages and culminates in a unique and compelling vision statement and elevator pitch.
“I have now experienced Strand Financial brand workshops for three of my businesses at different stages of development from start-up to Royal Warrant holders. In a simple and effective way, the workshop participants are challenged to re-consider their approach to selling and marketing their products and their business. In each case, the management of the business has walked away with a dramatically enhanced clarity of thought in respect of their business proposition. Whilst each business has extracted a range of specific benefits from the workshop, the common theme is that things will never be the same again,” comments Stuart Marshall, Managing Director, Litmus Advisory.
“Strand Financial are highly creative in coming up with solutions to our branding needs and marketing requirements. It all started with their brand workshop which created our corporate vision. They have since handled a large marketing campaign for us, and again quickly understood the key message I was trying to put out to the market – phrasing it with far more eloquence than I could, and all at rather short notice!” says Ian Steward, Managing Director, Five Arrows Commercial Finance.
For more information contact Strand Financial Ltd on 020 7520 9216. www.strandfinancial.com |
