Communicating About Draw Downs – A Tale of Two CTAs

…, it was the spring of hope, it was the winter of despair, …. Charles Dickens, “A Tale of Two Cities”

I talked recently with an allocator, let’s call him “Charles”, who works with systematic trading managers. He contrasted for me two commodity trading advisors (CTAs) in similar drawdowns but with very different approaches to their investors.

The rapport you build with your investors can carry you through the winter of a long, deep drawdown and into the new growth of spring.

The first CTA built their relationship solely around the return characteristics of their program. When Charles inquired about their drawdown, the CTA was defensive, citing the systematic trading truism that “drawdowns happen”. The manager didn’t give Charles the confidence that they were on top of the situation. The CTA’s response lacked concern for Charles’ needs.

The second CTA had built a much more personal relationship with Charles over time. The CTA often reached out to him for one-on-one updates; they exchanged personal and business news. Charles looked forward to these calls as they were about more than just performance statistics. During their drawdown, the manager kept Charles posted personally, with their analysis and the steps they were taking. Charles appreciated the manager’s concern for his situation.

The bottom line?

Charles pulled his allocation from the first CTA and is unlikely to reinvest in the future. He reduced his allocation to the second CTA, but kept them in the game. Charles was rooting for this manager to succeed. He put it this way: “it’s hard to take money away from people you like”.

It takes time to build personal relationships with your customers; it’s important to start now.

➤ How do you build rapport with your investors? Let me know in the comments. Reach out if you want to connect.

Pics:

• Richardfabi – Own work, Public Domain, Winter
• Benjamin Gimmel, BenHur – Own work, CC BY-SA 3.0, Spring