Use of “data and analytics” is reflective of a 21st century investment management process. Non-traditional data sets i.e “alternative data”, ranging from consumer transactions to social media and app data, are now being used in almost all aspects of the investment management business. The information, insights and intelligence of such data sets can support fundamental research, help managers understand competitive markets and develop “unique” investment strategies. Other common uses include predicting volatility, profit and risk-adjusted return generation, improving business operations, and client retention and attraction, more on that in a bit! A study by Greenwich Associates revealed 72% of investment firms reported alternative data enhanced their signal, with over a fifth saying they got over 20% of their alpha from alternative data. Simply, “alternative data” is now “THE thing” among investment managers, as projected spend will exceed $1 billion this year.
In a hyper-competitive, performance-focused and results-based industry, “alternative data” is now a must-have for ALL 21st century investment managers. However, marketing and raising assets, two critical processes for successful investment management as a business, are “stuck in the 80s” by most new and smaller firms.
The vast majority of new and smaller firms do not have a 21st century process-based approach to marketing and raising assets. In fact, 81% have no marketing process. They frequently use inappropriate (pushy, overly aggressive) impersonal (“pitching”) and improvisational (“cold-contacting”) tactics, such as blindly blasting out performance via emails and/or making “cold” calls. Such actions rarely lead to success building relationships, gaining TRUST and raising assets but generally produce lots of frustration and failure. To quote a family office executive in a survey we completed, “we assume a manager that cold calls or blindly solicits us is an amateur. We have no interest in dealing with amateurs We take note of cold callers and don’t do business with them“.
Lack of process often means lack of infrastructure. One of the key aspects of marketing infrastructure is a robust relationship management database that contains high integrity qualitative and quantitative data about current and prospective investors as well as up-to-date contact information. A large number of new and smaller managers have no formal marketing infrastructure (the use of simple spreadsheets to track investors and prospects is widespread), which results in an “aspirational” pipeline filled with investors that do not meet the manager/fund profile. The typical new or sub-institutional manager/fund “chases unicorns” marketing and raising assets: The relentless pursuit of the mythical family office or institution ready to allocate a large sum to a manager/fund that has not achieved the “credibility AUM level”, greater than $100 million. Lack of marketing process and the necessary infrastructure leads to poor execution, which again produces frustration and failure.
As a piece of caution about investor lists: Any list that is relatively cheap to acquire/purchase has generally been “over-prospected” and the contacts have most likely been “inappropriately engaged”.
Without a CRM (client relationship management) process, little if any substantive qualitative and quantitative data of current investors and prospects is readily accessible, which prevents achieving greater efficiency, economy, expedience and success raising assets. Today’s investor is more informed, has access to more data and equipped with better information about managers and funds. Moreover, the sophisticated alternative investor in hedge funds, private equity, etc is more skeptical, stringently selective and idiosyncratically demanding. As a result, it is incumbent for ALL managers/funds, but even more crucial for new and sub-institutional managers/funds (those with AUM less than $100 million), to “step out of the 80s” and utilize 21st century marketing and fundraising processes to have any reasonable expectation of success raising assets.
What is the tactical action point?
Performance is no longer the singular driver of AUM growth as it was in the 80s/90s. The consistent and APPROPRIATE engagement of sophisticated, skeptical and selective investors to raise, retain and expand AUM as well as prevent AUM volatility is what MARKETING is all about. To succeed raising assets now requires commitment to a marketing process along with the necessary skills and infrastructure to acquire and analyze qualitative/quantitative investor data that enables PROSPECT-SPECIFIC ENGAGEMENT. This mindset is fundamental for marketing process execution at the high level now mandatory 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.
Johnson & Company
Direct: (512) 786-1569 or [email protected]