Victoria Hyde-Dunn, director of IR at Visa, discusses the benefits and challenges of meeting with hedge funds
How do hedge funds engage with you as a corporate?
Primarily through direct outreach to IR and the sell side when we are participating in or hosting non-deal roadshows, bus tours, conferences, and so on.
What are the top changes in this engagement over recent years?
I have seen hedge funds work with corporate access teams and seek their advice on ways they can improve their relationships with IROs and make the meetings and interactions more productive. I see this as a very positive sign that they realize it does consume a lot of management and IR time and understand that it’s important for everyone to get something out of these meetings as well.
What would you say are the top benefits and challenges for corporates meeting with hedge funds?
As with any shareholder, there are both opportunities and challenges. Hedge funds can be great, long-term holders within your shareholder base, and in the short term can lend support to your stock if they understand and believe in your corporate story. They are also a great source of information – they tend to hear and see things on the Street you might not be aware of. In addition, they are all unique: there is not a ‘one-size fits all’ approach and we shouldn’t be biased or think we can lump everyone together.
IROs can better understand how the funds are structured, their investment philosophy, core holdings, typical holding period, fund size and buying power, how/why they buy stocks, and so on.
Transparency is important, especially if you are trying to distinguish the shorts from the longs. High turnover at the fund is a risk but then that portfolio manager may end up at another firm and over time become a new shareholder.
Also, if you look at the last several years, many of the leading shareholder activism efforts have come from hedge fund managers. That’s a separate conversation, but it’s better to have early engagement and open dialogue with the company. Ultimately, this is all about achieving a healthy balance of engagement and knowledge with the firm.
Do your senior managers get involved in meetings?
Unless the hedge fund has already established a relationship with senior management through prior interactions, IR will typically maintain the early interactions. After there is a better understanding of the company’s approach, you can more effectively make the call on whether to get senior management members involved.
What type of hedge funds do you target, and why?
We don’t consistently target hedge funds in terms of new investor outreach efforts. When they contact us for a meeting or conference call, we do engage with them. If you hear from an unfamiliar fund, do your homework on it. The greater the transparency about what it is and how it invests, the better the conversation and outcome can be.
What are the advantages of having hedge funds as investors?
If you can convince a major hedge fund to take a significant position in your company, it will often be a very long-term holder. Its behavior is more like a growth-and-value shareholder and less like a momentum player. They are a great source of liquidity, especially for small caps where they can help drive liquidity and volume for the long-only to take positions.
We all recognize that it is much more time-consuming engaging with a company that does not have a position in your company than a short-only moving to a covered position.
Some hedge funds do tend to share information with one another and they often travel in packs. Once they have made an investment, they like to spread the word as it tends to drive demand. On the flip side, if one of them leaves your stock, you run the risk that others will follow.
This article appeared in the summer 2017 issue of IR Magazine