The following post is courtesy of Diane Harrison who is principal and owner of Panegyric Marketing, a strategic marketing communications firm founded in 2002 specializing in alternative assets.
A common habit in January, but one frequently broken, is making a slew of resolutions for change. Rather than setting too many goals to change and spreading your efforts too thin, pare down the amount of change to make and prioritize a couple. When it comes to selling alternative assets, managers looking to increase interest in their offerings can apply this tactic in a simplified sales pitch.
OFFSETTING THE TIMEWORN ARGUMENT IN AN ELECTION YEAR
Ask any salesperson in the alternatives space what is their biggest challenge to increase allocation or gain new assets for a hedge or private equity fund during a presidential election year, and you will almost certainly hear them say they receive some slight variation on this theme— “I’m going to sit tight until we know what the election outcome is, because things could change in regulations and geopolitical positions that make me wary.” Whatever the current allocation bucket is for these sales targets, their de facto stance is to stay the course, or perhaps move more into traditional slots, such as cash, awaiting a higher level of conviction about what they think might happen post Election Day. This frustrates the alternatives salesperson, as it tends to shut down a meaningful dialogue about promoting any investment outside of cash or fixed income.
So what to do about this? Assuming no one wants to sideline selling activity completely every 3 years, a resourceful alternatives salesperson needs to counter this reflexive attitude of resistance with a position that can open the conversation. Using this year as a proxy for the counter sales pitch, let’s role play a possible scenario.
2020…HURRY UP AND WAIT
To set the economic scene, here’s a brief recap of what every investor is hearing in year-end manager letters across the asset classes: The U.S. stock market is at an all-time high and leads the rest of the world, interest rates remain low, GDP is on the upswing, unemployment continues to drop to new records, and wages are on the rise. Good news, to be sure…but is it perceived that way by all?
A glass half-empty person might react to the above by saying, ‘Things have moved so high and for so long that undoubtedly a correction is on the horizon.’ Or perhaps “One global conflict—in the Middle East, with China on trade war escalation, a substantial terror event anywhere in the world—could spell disaster for the markets.” While this is true, it is no truer in January than it was last year, and will be farther out into 2020. We can’t predict the unpredicted, but we can help ourselves prepare for it. Returning to our New Year’s resolution example, paring down the alternatives sales pitch to focus on portfolio positioning for the unknown makes good sense in times of strong traditional asset performance but heightened unease about when the next significant risk to status quo might come.
Alternative investments perform in a multitude of ways that can benefit an overall portfolio, and over the past three decades, as they have become more familiar to investors and have morphed into many specialty strategies and structures, the way in which salespeople present them has also become more complex. However, 2020 is an election year, and also a year in which prolonged good news across the financial horizon continues at a steady pace, creating the strong resistance to change perspective previously outlined. A simple, compelling case is needed to make inroads in alternative sales this year.
DIFFERENTIATE YOUR SALES PITCH WITH ONE REASON, ONE STORY
Alternative assets typically perform in ways that do not correlate with traditional assets, and as such provide the risk mitigation that is a perennial sales pitch boon. This is never truer than in a year where investors are fearful of making any investment moves away from what’s working towards something that may or may not be working in the near term.
Investors worry about risks: they fear downside moves, they seek allocation mixes that provide them some measure of comfort that the preparedness for unforeseen changes has been improved. A strong start to getting investors to listen to the alternatives sales pitch in 2020 is to refine its focus by explaining how a particular investment has demonstrated its ability to move in a non or uncorrelated way to traditional assets. Pare down the typical case made for alternatives to this key theme, and support the concept with clear examples and descriptions of how the strategy works and what impact it can have in a portfolio.
Some alternatives lend themselves to this approach better than others—commodities, distressed private equity vehicles, event-driven funds, precious metals— to name a few, but the general approach to discussing the lack of correlation to the rest of an investor’s portfolio holds for the majority of alternative assets.
A second key component of this risk mitigation argument in favor of including alternatives into a portfolio is that of timing; specifically that timing cannot be a successful long-term approach to risk management. Virtually all investors will concede that unknown risks can happen anywhere, anytime. Trying to reposition a portfolio defensively after such a risk has negatively impacted the market is far more difficult and less effective than being proactively positioned to lessen such risk’s impact on a portfolio when or if it occurs. This is the alternatives salesperson’s one-two punch for 2020 to influence a wary investor: risks are out there, you are worried about them, and our alternative offering can benefit you in lessening this fear or potential impact by providing X and mitigating Y.
Despite being very early in an election year, one thing can be predicted with almost 100% certainty: regardless of the presidential vote outcome in November, this country will remain deeply divided, and Congress will continue to reflect that divide. Sales pitches designed to overcome the general 2020 nervousness and desire to hold onto status quo will tailor their focus to address these very real concerns.
Leave a Reply