How Should Hedge Fund Managers Handle and Document Investor Complaints?

Not all hedge fund investors are satisfied customers, but not all dissatisfied hedge fund customers sue or seek to arbitrate.  A halfway house between legal action and no action is the investor complaint – an expression of dissatisfaction with some aspect of the investment relationship, which need not relate to performance.  Good performing hedge fund managers can (and do) receive investor complaints, and the most formidable types of complaints frequently relate to matters other than performance, for example, the legality or propriety of conduct of manager personnel.  Adaptive hedge fund managers have developed an infrastructure and style for responding to complaints, and view them as an opportunity to engage investors and other constituencies.  Lesser managers bristle at any whiff of criticism, though that is a bad strategy for all involved; from the investor perspective, part of the job of a hedge fund manager is engaging with reasonable investor inquiries, including justified complaints.  Moreover, given the relatively small size of the hedge fund investor universe (at least compared to the retail investing population), the SEC’s whistleblower bounty program and competition for scarce assets, appropriately calibrated responses to investor complaints can have implications for marketing, reputation and regulatory relations.  In short, navigating the investor complaint process is a relatively novel challenge in the hedge fund industry, but an increasingly important one.  To help hedge fund managers think through the various components of this challenge, this article discusses: what constitutes an investor complaint; who within the management company should receive such complaints; how investor complaints should be investigated and addressed; when to notify the general counsel of an investor complaint; how to determine the appropriate course of action, including whether, when and how to respond to complaints; and how to document a complaint.

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