Public companies keen to invest in hedge funds says survey

Date: Monday, February 2, 2009
Author: Hedge Funds Review

The overwhelming majority of public companies are keen to engage with hedge fund investors, with 89% proactively meeting with hedge funds as part of their investor relations programmes, according to a survey conducted by Bank of New York Mellon (BNY Mellon).

Despite the widely reported concerns about short selling and hedge fund activism among some company CEOs, the survey results reveal a broad acceptance of hedge funds as investors.

"There is greater appreciation of the range of different investment styles in the hedge fund industry. Companies have realized that many hedge funds can be a viable source of long term investment," said Guy Gresham, New York head of the global investor relations advisory team in BNY Mellon's depositary receipts division.

The number of companies meeting with hedge funds is up significantly from 2006 (76%) and marginally from 2007 (88%).

Companies in Europe and North America are most likely to meet with hedge funds. In Asia Pacific (75%) and Latin America (70%) the picture is mixed, with 15% of Asian companies stating they have not met with hedge funds in the past and are not considering doing so in the future.

Because hedge funds typically have a more flexible mandate and greater risk appetite than mutual funds and institutions, they are more likely to invest in distressed companies or those facing difficulties as a result of the credit crunch.

"Our advice to companies is to be proactive with their investor relations programs in spite of the volatile markets. There is a lot of cash on the sidelines, and now is the time to catch the attention of these potential investors," Gresham adds.

However, the survey found some dissatisfaction among companies regarding the quality of the hedge funds they meet.

Of the respondents 27% said they did not know or lacked enough information to judge the quality of hedge fund managers they met through brokers. A further 21% said brokers introduced them to too many small funds or to aggressive high turnover funds.

"There is a disconnect between the broad appreciation of hedge funds as investors and the specific knowledge and understanding that companies have about the industry. We try to address this with education and by helping companies to target the right investors," Gresham said.

The BNY Mellon survey also found companies had increased communications with analysts and investors in the wake of the credit crisis.