Many believe that because they rigorously exercise, they don’t need to be vigilant about their diet. This thinking is the road to failure in fat loss and fitness. Most people with a fit, lean body or a 6-pack didn’t get that way rationalizing trips to the donut shop!
In the pre-COVID days, when going to the gym was a habitual daily activity for some of us, how often would you see the same people on the treadmill for hours and lifting weights religiously but never see change in their body, never see them lose any significant weight and never see them get in “good” or even decent shape. The truth is all that long, hard activity and sweat didn’t make their belly disappear or ab muscles show because they probably continued consuming beers, burgers and fries!
Similarly, new and smaller managers/funds consistently putting up “solid” or ‘great” investment performance but lacking a MARKETING PROCESS won’t see AUM growth or have success raising assets. A firmly-held and widely-believed misconception among almost all new and smaller managers/funds is that the only thing needed to raise assets is investment performance. I refer to that belief as “THE BIG LIE”.
Plain and simple, there needs to be a change in mindset. Yes, investment performance is mandatory but it’s not the sole criteria or single decisive metric in the decision to invest. The fact is an expanded set of qualitative and quantitative criteria on a “prospect-specific basis” now determines the allocation decision. In reality, investment performance brings “attention” and functions as “lead generation” in marketing and capital raising processes.
Volumes of research and data solidly confirms that thousands of new and smaller managers/funds have “good” or “great” performance on an absolute, relative or risk-adjusted basis but most fail raising assets. A 2019 study from Goldman Sachs revealed that most funds shutdown within 3 years due to inability to raise assets. The large majority of new and smaller managers/funds never get AUM beyond founders capital, family money, investments from friends and former colleagues along with a few small allocations outside of that limited circle.
New or smaller managers/funds “can’t out-perform bad marketing”.
New and smaller managers/funds have no margin for error and “bad marketing” leads to lots of mistakes, some that can be catastrophic or fatal. Just one mistake can be the difference between YES and NO in the decision to invest. However, most “constantly pitch performance”, which is THE BIGGEST mistake and the primary illustration of “bad marketing”. Even worse it’s continuously repeated. New and smaller managers/funds who insist on “throwing performance” in the face of prospects will continually strikeout when it comes raising assets.
“PITCHING” in all the various forms is “bad marketing”. Moreover, it is un-professinal, inconsistent, improvisational, ineffective, inappropriate and inefficient “prospect engagement” that only produces more mistakes, that exacerbate the struggle, frustration and failure raising assets.
While many new and smaller managers/funds have “bad marketing”, the real truth is most have ‘no marketing’: 81% do not have a MARKETING PROCESS. As such, they keep repeating the same mistakes as well as make new ones, which only compounds the struggle and frustration as well as prolongs failure raising assets.
Due to COVID-19, marketing and raising assets have become more resource-intensive, time-consuming, complex and difficult. With many managers/strategies failing to deliver as promised through the crisis, the consequence has been that all investors, especially private wealth (ultra high net-worth individuals and family offices), the most suitable and appropriate segment for new, smaller and sub-institutional managers/funds now have access to better information and more experienced resources, as such they are highly-informed. Subsequently, they are more skeptical, stringently selective, idiosyncratically demanding and extremely risk averse. The result is the marketing challenges for new and smaller managers/funds are now more substantial. This elevates the MARKETING PROCESS as THE essential component and priority for any new or smaller manager/fund that wants success raising assets. Specifically, consistent execution of a properly-resourced, disciplined, structured, focused and “prospect-specific” MARKETING PROCESS is now mandatory.
What is the tactical action point?
Money is MADE in front of SCREENS; Money is RAISED in front of PEOPLE.
To that end, new and smaller managers/funds that want to succeed raising assets must be optimally positioned and completely prepared to consistently execute the “correct” MARKETING PROCESS that:
- Continually identifies the “most suitable and appropriate” prospects given the manager/fund profile.
- Maintains a pipeline of “qualified” relationships.
- Supports appropriate “prospect-specific” engagement.
These are just three (3) critical aspects of the many vital components required to achieve the two (2) essential ingredients in the allocation decision:
TRUST and “ACTIONABLE CONVICTION”
As always, I hope you find this helpful.
Johnson & Company
Direct: (512) 786-1569 or [email protected]