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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.

Back in 2012, I published an article discussing the importance of relationship management in the selling of alternative assets to investors, At the time, I’d stated, ‘Alternatives are bought by professional investors (institutions) and sophisticated individuals (family offices, high net worth people) as a means of capturing upside gain and minimizing downside risks across an overall portfolio of holdings.  Always has been, and likely always will be.’ Flash forward to 2020, and I stand by this opinion. If anything, building trust and transparency in communication has become more essential to the alternatives sales process.

In preparation for the article in 2012, I surveyed a group consisting of prime brokers, third party marketers, and advisors in the wealth industry about their experiences of what went wrong during face-to-face interchanges between fund managers and investors.  The results I received then are still relevant today and really come back to the basics: investors want to understand what they are getting into and to feel comfortable that their partner in the process is committed and capable of delivering the goods.  


Following is a look back at several of these issues, serving as a reminder that trust, integrity, relationship, and respect are solid values that never go out of style.

Why did the manager start their fund?

The general consensus was that the impetus for striking out on your own in the very risky world of fund management needs to be a cogent rationale thought through in advance. Since 2012, alternative funds have gone through even greater consolidation than they were in 2012, and those that choose to offer funds need to provide a believable explanation for this difficult journey.

What is the time breakdown for the fund manager between raising money versus investment management? 

Smaller funds perpetually struggle with this essential time dilemma. It still takes 18-24 months of asset-raising for even a well-planned out start up fund to reach critical mass.  Yet investors are wary of what might slip performance-wise if a portfolio manager has to devote a substantial chunk of their time to raising assets in order to survive. More than ever, dedicated marketing professionals are needed in the asset-raising effort, minimizing the need for the fund manager to attend meetings until the appropriate time for decision-making.

What is the optimal cap size for this strategy? 

The industry buzzwords ‘scalable and repeatable’ are very much alive and well in alternatives.  But some boutique or niche strategies are designed to be limited in scope and investment opportunity set. If a niche manager believes the capitalization size for a strategy is $250M, then state that and defend the premise. Creating a sense of urgency for those in the know to get in before the fund capacity is reached doesn’t have to be a disadvantage in messaging.

I can’t see them as part of our team

Targeting the right investors to fit your fund outlook is still a requirement to success in selling. Do a little research in advance and conduct the meeting accordingly.  Dress appropriately for the event. Take behavior cues from the level of formal or casual style the investors are demonstrating and act in a manner that meshes with the style of the group. Managers and their sales agents need to balance passion with restraint and plain good manners to show respect for the investors they are trying to win over. 

I wish they had spent more time telling us where they see their strategy working this year.  

Back in 2012, there was great emphasis placed on the investment crisis of 2008, and its aftermath. Eight years out, while this event and a healthy respect for all risks are always forefront in investors’ minds, managers need to address their ability to navigate what’s ahead in the markets.  Investors want to understand how a manager plans to move forward with conviction and success.  

I just don’t get why they think their investment sources are unique.  

Data, deal flow, special access to information are all essential components to a manager being able to produce investment results.  Every manager feels they see the winners others miss. Managers need to articulate with clarity how their approach yields the results needed on a long-term basis.  Whatever the process is, be ready to describe it in 5 minutes or less. The ability to do so will be worth its weight in gold.

I don’t see how they can run the company (being that size) for long.  

This concern is even greater than it was in 2012. Investors are justified in worrying about a management ‘burn rate,’ when start-up capital is being funded externally from the profit able to be generated by the business itself.  This shortfall can jeopardize decisions made by a manager, both on the operations side (shortcuts), and the investment side (positions taken on a more aggressive basis than would be the case if funding were not an issue). Managers need to provide an adequate explanation of where working capital will come from, be it their personal stake or from external sources through seeders, angels, or other interest groups. It needs to be disclosed freely to minimize the assumption that start-up working capital has not been accounted for in advance of reaching critical mass in assets.

Knowing how many dollars the fund is up or down for the day doesn’t constitute (our definition of) risk management.  

More important to the wealth set than the ability to make money is capital preservation.  The discussion with investors around risk management practices should center on capital preservation and how the methodology undertaken by the manager will achieve this goal.  A detailed descriptive process designed to seek upside potential while minimizing downside movements over the long run should be an integral component of the sales pitch.

When I asked for a trade example, I didn’t mean a dissertation.  

Specifically, a drawn-out trading example that drills down into detail no investor cares to hear or learn about is far less effective than a couple of highlights about trades that were successful and why, and trades that went opposite and why.  In all cases, ending with the lessons learned and portfolio adjustments in the wake of the examples serves far better to help an investor understand where a manager is coming from.

The 2020 conclusion is the same as it was in 2012: not every meeting will lead to another, and not every investor will be appropriate for every fund.  But maximizing meeting time to engage viable investors who could benefit from a manager’s abilities remains a top priority for the 2020 fund manager as it was in 2012.  A little introspection and better preparation can help managers achieve this goal moving forward.

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