The McKinsey Quarterly’s website contains a recently published interview with Lee Ainslie, managing partner of Maverick Capital. The article poses the question, “What should a company do when a hedge fund shows up among its investors?” (The article is also the source of the image at right.)
Ainslee answers the question quite well, and addresses several other issues that senior executives and investor relations officers grapple with in their dealings with investors. Managers should spend a few minutes reading the interview in full.
Known as one of the respected “Tiger cubs” who spent their early careers with Julian Robertson of Tiger Capital Management, Ainslie’s answers to McKinsey’s questions indicate why Maverick is well named. Ainslie sounds more like an owner than a denizen of the murky world that recently has been portrayed as a band of short-selling, conspiratorial Street hooligans.
Among McKinsey’s questions and Ainslie’s comments:
The McKinsey Quarterly: How do you maintain a good relationship with executives when you have a short position in their company? Do they even know?
Lee Ainslie: Our short positions are not publicly disclosed, but if an individual management team asks what our position is, we will answer honestly. This policy can be difficult in the short term, don't get me wrong, but I think most management teams appreciate and respect this integrity, which over time leads to a stronger relationship.
I will point out that when we are short, by definition we're going to have to buy eventually. A short seller is really the only guaranteed buyer that a company has. Some companies disdain any interaction with short sellers. The more thoughtful, intelligent companies take a different tack and want to improve their understanding of the concerns of the investment community. Sometimes they'll listen and prove us wrong, and other times they will recognize that we have legitimate points. With the intensity of our research and analysis and our strong relationships with significant competitors, we may have insights or information that prove to be quite helpful to companies.
Q: If I'm a CFO, how do I decide which institutional investors to develop a relationship with?
Ainslie: For a CFO, whose time is a limited and valuable resource, this is a very important question. Unfortunately, there is no magic list of the funds that do thoughtful and in-depth analysis. It's not too hard to figure out that a CFO should develop a relationship with an institutional investor that owns millions of his company's shares. The harder part is to recognize which investors are so thoughtful, intelligent, and plugged in that a CFO should find time to talk to them. At Maverick, for example, as part of our intensive research effort, we maintain constant dialogues with the competitors, suppliers, and customers of the companies in which we invest. As a result, many management teams find our insights to be quite helpful.
Q: Who should lay that groundwork?
Ainslie: A company's investor relations team can play a very valuable role in this regard. By constantly and proactively meeting with shareholders and potential investors and developing an understanding of their knowledge and abilities, the team can assess which investors a CEO or CFO should meet with. The better sell-side analysts can also be very helpful in this regard.
Management teams should seek out the more thoughtful investors who ask hard questions and have clearly done their homework. Over time such dialogues will hopefully develop into mutually beneficial relationships.
Technorati tag: Investor Relations
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