How to Tell Your Investors You Were Down Last Month

March 2026 was, by most measures, the worst month for hedge funds since the COVID shock of March 2020. The damage across strategies was broad and largely indiscriminate; the HFRX Global Hedge Fund Index declined 2.95% for the month, while the HFRX Equity Hedge Index fell 4.44%.

The Letter Nobody Prepares For

If you run a fund, there’s a reasonable chance you’re sitting on one of the more uncomfortable LP updates you’ve had to write in years.

The instinct is to minimize, to contextualize, to point at the index and note that everyone was down. These moves are understandable, but they miss the point of what your LP is actually trying to figure out when they open your update after a month like March.

They already know that it was bad, so the questions you should really be answering are: do you understand what happened to your portfolio, and do I still believe in your process?

Be Specific About the Source of the Loss

The single most important thing you can do in a drawdown communication is explain exactly where the loss came from. Avoid phrases like “challenging macro environment”. That’s a description of the weather, not your book. Was it a factor exposure you carry intentionally that moved against you? A position that repriced idiosyncratically? A liquidity event that forced an exit at the wrong time?

The more specific you are, the more credible you sound. Vagueness reads as uncertainty about your own portfolio, which is far more alarming to an allocator than the loss itself. If you lost money because oil spiked 40% and you were long energy transition equities that got caught in the reversal, say that. If you were long growth at the wrong moment, say that too.

Separate Process From Outcome

A bad month is not always a bad decision. If you sized a position correctly, had a clear thesis, managed the risk within your stated framework, and still lost money – that’s worth saying explicitly.

A drawdown letter that demonstrates you understand the difference between a process failure and an outcome failure is doing important work. Most institutional investors understand that volatility is the price of the returns they’re seeking. What they can’t tolerate is the sense that you don’t.

Show Them Where You Stand Right Now

One of the more unsettling things an LP can read is a letter that describes what happened last month without any clear line of sight into the current portfolio. What are you positioned for going forward? What has changed, if anything? What does your exposure look like today relative to your risk budget?

You don’t need to make predictions, but showing that you have a current, precise read on your book (factor exposures, concentration risk, scenario sensitivities) signals that March didn’t catch you off-guard operationally, even if it caught you off-guard in terms of P&L.

Don’t Over-Promise the Recovery

The most dangerous thing you can write in a drawdown letter is a confident prediction about bouncing back. Allocators have seen too many of those letters, and they rarely age well. What they want instead is a sober, honest assessment: here is what we know, here is what we don’t know, here is how we’re thinking about it.

Julian Robertson’s closing letter from March 2000 is worth reading if you haven’t. Faced with years of losses fighting the tech bubble, he didn’t promise a recovery or blame the market. He wrote plainly that he was operating in a market he frankly did not understand, and that there was no point subjecting investors to that risk. He returned the capital and closed Tiger Management. It remains one of the most respected LP communications ever written.

**********

Kevin Becker is a Co-Founder and CEO of Kiski. Connect with him on LinkedIn here.

*Any views expressed in this article are those of the author(s) and do not necessarily represent those of EFSI.