After last weeks “grand re-opening”, areas of the country are selectively trying to return to former personal lifestyle, social and business activities. However, most restrictions remain in place limiting the ability of travel and face-to-face personal meetings. As such, the majority of inter-personal contact has moved to online technology (Videos, Zoom, Gotowebinar, Webex, etc.) in the same way “dating” has over the last few years.
Relationships and dating have been been fundamentally changed by technology. Technology, in the name of efficiency, has exacerbated short-attention spans and the need for immediate gratification. In response, “dating apps” now abound. Some focus on quick engagement or elimination of potential partners by simply swiping left or right with the ease of the thumb. However, for those that find “casual connections” unfulfilling and seek more “meaningful”, “deeper” or “lasting” RELATIONSHIPS apps exist for them as well.
WHAT DOES THIS HAVE TO DO WITH RAISING ASSETS?!
The fact is most new and smaller managers/funds approach raising assets like a session on Tinder (a popular dating app, reflective of the “hookup” culture) devoid of courtship, as opposed to the deeper considerations used by eHarmony, another online service that purports to deliver more lasting “connections”.
Courtship (MARKETING) is the relationship building period, which precedes marriage (INVESTMENT). During the marketing process, the investor and manager/fund get to know each other to decide if an allocation might be appropriate. A “courtship” may be a private matter as is the case in most “instividuals” (private wealth, ultra high net-worth/single family offices) segments or may be a public affair (RFP-lead) with intermediary involvement (consultants!), which is more the institutional experience It’s important to understand that through the “courtship” an investor provides clues to how the relationship will fare.
For those unfamiliar, eHarmony is an online dating site designed to match people looking for LONG-TERM RELATIONSHIPS. To optimize the matching process, eHarmony operates eHarmony Labs, a research facility that has developed a 258-question process to assess characteristics, beliefs, values, emotional health and skills that not only evaluates the answers to the questionnaire but also each user’s behavioral data. The software analyzes 500 variables to further optimize the matches.
Conversely, Tinder is an online dating app used more for SOCIAL/CASUAL HOOK-UPs because it finds potential matches based on little more than photos and proximity. The app uses an algorithm to connect people in the same or near-by locations via GPS, then uses Facebook to create a profile made up of only the users first name, age, photos (of users choice) and any pages the user ‘liked’ on Facebook. If a user approves a match, they swipe right to ‘like’ them. If not, they swipe left to ‘pass’. If it’s mutual ‘like” – SCORE! Let’s get the party started!!
What is the tactical action point?
Most funds have a “tinder-mentality” raising assets, while most investors are eharmony-based. With that said, considerable thought, greater commitment and more precision in the MARKETING PROCESS is now mandatory. That means the complementary processes of marketing and fundraising now require more structure, more discipline and more focus. For new and smaller managers/funds that want to succeed raising assets post-COVID, take the following into consideration:
- Before the crisis: Investors were hyper-skeptical, stringently selective and individually demanding. This was due in large part to an extended period of under-performance by hedge funds as a group. The result was overly invasive due diligence leading to extremely lengthy allocation cycles, averaging 11-13 months from initial meeting to actual allocation.
- Through the crisis: Manager propaganda began to be separated from proof. Simply, some managers/funds lived up to the promise and others failed to deliver. This coupled with restrictions in personal, social and business activity has lead to behavioral changes that have exacerbated investor skepticism, selectivity and demands.
- Post the crisis: As the acute phase of the crisis passes and the country “re-opens”, many investors are in “wait and see” mode re-positioning assets and selecting managers. To that end, they are idiosyncratically more rigorous regarding qualitative and quantitative aspects in manager/fund evaluation. Simply, a tinder-like approach by managers/funds will not be effective! An eHarmony-like process that has at its core APPROPRIATE PROSPECT-SPECIFIC ENGAGEMENT is now required. This enables the necessary investor/manager relationship to develop, which is critical to achieve the essential ingredients in EVERY allocation decision: TRUST & “ACTIONABLE CONVICTION” .
Remember: We are all in this together and will come through it TOGETHER!
Continued Success, Stay Calm and EXECUTE!
As always, I hope you find this helpful.
Bryan Johnson
Managing Partner
Johnson & Company
Direct: (512) 786-1569 or [email protected]