Tips, Traps and Trends
e-letter from HS Marketing
Creating Compelling Performance Reports
Dear Clients and Friends,
In view of increasingly keen competition to attract and retain assets, it is imperative that a manager present winning performance reports. They need to be attractive, informative and be built to tell your story in the most compelling fashion and to highlight your particular strengths. In this e-letter, Meredith Jones, managing director of PerTrac Financial Solutions, one of our strategic partners, provides six critical steps full of tips to achieve your objectives.
1. Understand the Statistics: The first stage of building a high-quality performance report is to choose relevant statistics and to calculate them correctly. Most investors expect to see the following: Monthly Returns, Annual Returns, Compound Annual Return, Annualized Standard Deviation, Sharpe Ratio, Drawdown Analysis, and Correlation to Benchmarks. Statistics must be calculated correctly. For an investment statistics guide containing industry-standard statistical formulas and details, PerTrac Financial Solutions click here.
2. Showcase Competitive Advantages: Most statistics are intended to be used as comparative measures rather than as absolute numbers. They don’t mean much in a vacuum. What does it mean for a fund to have a compound annual return of 9%? Is this good or bad? What about a standard deviation of 6%? Does this make the fund more or less predictable? Present your numbers in perspective by incorporating thoughtful peer group analysis into your presentation. This kind of analysis makes a much more powerful impression on a potential or current investor. Be sure to run peer group analysis on a number of statistical factors. A fund may be at the bottom of its peer group for returns, but may rank among the most attractive funds with regard to volatility (as measured by standard deviation and downside deviation). This would make your fund a prime target for those investors who desire a cash management alternative. Another fund may rank at the bottom of its peer group for standard deviation and Sharpe ratio, but may lead its peers in annualized returns. There is an investor appetite out there for just about every return profile. It is up to you to understand your profile and use it to your best advantage.
3. Use Pictures to Paint a Picture: Graphics can drive a point home and grab a potential investor’s attention. For example, it may be helpful to showcase a simple VAMI graph to illustrate that your fund has experienced steady returns, outperformed an index, or had consistently positive returns.
4. Select Appropriate Benchmarks: Prospective investors want to know how your fund’s performance history compares to relevant benchmarks. Avoid benchmarking a long/short equity fund to T-bills, an Asian fund to the S&P 500, or technology fund to the Dow Jones Industrial Average. Select benchmarks for comparative value, not based purely on familiarity. Consider using a strategy-specific hedge fund index (available from most of the major index providers), as well as a market benchmark and, if available, a long-only (mutual fund) benchmark.
5. Include Market and Portfolio Commentary: Your performance report is incomplete without market and portfolio commentary to put the numbers in perspective. Be sure to include such information as:
- What is your view of the market? Where has it been? Where is it going?
- How has the fund been positioned to profit from market conditions? What changes (if any) will be made going forward?
- What positions have worked well in the past month? What was done with those positions? Are they still being held? Were they pared back? What about the “losers” in the portfolio?
- What are the largest positions within the portfolio? Why were these positions selected?
6. Include Investment and Contact Data: Provide an outline of the fund’s structure and full contact data on every performance report. List your entry and exit dates, lock ups, notice period, minimum investment, fees and service providers, as well as full contact details for primary personnel. Without this information handy, investors are forced to search through your confidential offering memorandum and other documentation, which can only lead to frustration and perhaps thwart investments.
These simple steps can go a long way towards getting your fund noticed, and keeping current investors well-informed and invested.
Holly Singer, President
HS Marketing, LLC
Princeton Junction, NJ 08550 | tel. 609.275.1303