Hedge Fund Question of the Week – Summer Edition – No. 2

When is the best time to prepare a crisis management plan?

Answer:  When there is no crisis.

A crisis materially and in short order threatens the viability of a firm, and generally occurs in one of two ways.  First, it may be specific to a particular firm and triggered by an event such as a bad act by a rogue employee, a key-person mishap, an investment turned sour or a serious cybersecurity breach.  Second, a crisis may result from an industry-wide event, such as a significant market downturn.  Both types of events can lead to crippling investor withdrawals.  

A good plan will cover a number of potential scenarios and anticipated responses.  The plan will typically spell out what steps to take, who will have overall responsibility for each step and how to communicate the response.  The plan also will likely address communications with employees, investors, critical counterparties, legal counsel, auditors and the media. 

When the markets experienced their meltdown in 2008, some firms had a plan in place and most others took prompt steps to develop one.  But that was 10 years ago and the topic has received less attention since then.  So it might be a good time to revisit old plans or develop a new one.