In WPs latest issue, Women of Influence, Arrow Capital Management portfolio manager Veronika Hirsch discussed changes to the accredited investor exemption and how this affects hedge funds. Not covered in the magazine but equally important are her thoughts on managing client expectations.
In the past week WPs run two articles about managing client expectations – February 26
and March 2
– that highlight the need for advisors to provide clients with realistic future returns, especially given we’re in the last legs of an extended bull-market run.
Now more than ever experience counts; Hirsch, with more than 25 years in the investment industry, certainly fills the bill.
Hirsch starts this conversation by explaining the two reasons redemptions happen.
“Generally, redemptions come for two reasons. One, people need the money for whatever reason they need the money for, and two, they come because people are disappointed with what the returns are vis-a-vis what their expectations are.”
This applies to investors of all sizes and although Hirsch is speaking to Arrow’s institutional perspective regarding hedge funds, she’s also speaking in a general sense about advisors, do-it-yourself investors, pensioners and anyone else invested in equities.
“If you can mitigate that [expectations] and lower the disappointment than your assets will grow much better and more importantly, which is positive for Arrow, it will create a level of satisfaction with investors and a level of comfort so that people will be able to match their needs with the funds that they’ve purchased.”
Here, Hirsch isn’t just talking about returns.
She’s also speaking about the suitability of certain products for particular clients. Mitigating expectations includes advisors making sure that clients understand why they’re in certain products and what those products can expect to do in the worst of times, and not just the best.
“You’ve got a lot of people who don’t have a large amount of assets who are sitting in cash because they can’t really afford to lose any money because they need it for retirement and they were in the wrong product in 2008; and to be fair, 2008 was an extraordinarily horrible year and an lot of people obviously had returns that were much worse than anybody expected. That notwithstanding, I think if you were better able to match people’s needs with products I think that would benefit investors.”
Now, again, Hirsch is speaking to the changes in the hedge fund market, but certainly these sentiments are just as applicable to advisors.
Managing expectations matter. So says industry legend Veronika Hirsch.