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.
Ten years ago I took a look at the market environment in 2011 and made the case for why alternative managers should be excited to market their offerings to investors. A lot has happened in the world since then, so midway through 2021, I’d like to revisit those 10 reasons from 2011 and see how they stack up in today’s environment.
#1: Money will be moving out of traditional asset classes and looking for a place to go.
The alternative sector offers an opportunity to both reduce risk and increase upside potential beyond the safety net of sitting on cash. While this is not news, it is getting more attention from investors who are motivated to reduce their holdings in equities and fixed-income, real estate, and hard assets and to find alternative, non-traditional means of diversifying.
This is still true, and the extra advantage for managers is that investors are more educated and less gun-shy about adding alternatives in a substantial way into their mix.
#2: There is an actual mandate for professional investors to identify and partner with small managers.
2011 saw a real validation of this mandate in the flow of new investment activity towards managers in the emerging category. If you are an emerging manager with a strong performance pedigree from your past, an infrastructure that supports the growth new investment means for your business, and a management game plan that addresses the personnel requirements to scale, it is game on for your chances to garner serious interest.
Mandates for alternative investment allocations continue to be part of the professional allocation process, and with specialty and niche strategies adding an additional decade of performance history, provide a greater range of choices for investors to consider in 2021.
#3: Advisors and consultants will focus renewed interest on finding the next talent pool in alternatives in 2012.
Their client base is driving the need to provide new sources of talent and capacity combined with flexibility and transparency. Emerging managers would be wise to facilitate the review process and relationship development with these key players who can open doors to investors previously inaccessible to new managers.
Viability and scalability have become even more important for emerging managers, and with the explosive growth and investor acceptance of outsourced options for a range of operational and investment platform support, small managers can demonstrate this viability much more readily than ten years ago.
#4: Family offices are getting more serious about diversifying their investment allocations.
Emerging managers will need to embrace the process of getting in front of many, many family offices and making their case for investment. The good news is that the educational process can support and drive some real concrete investment discussions leading to significant relationships. If you can combine capital preservation with alpha generation and tell that story convincingly, family offices will listen.
With the growing acceptance of zoom, webcasts, and podcasts providing a good means of communication, smaller managers have the ability to get in front of more investors virtually and sell their strategy. It will be interesting to see five years from now how successful that practice is for establishing some new players on a broader level.
#5: There is no clear strategy or approach that trumps all others.
2012 will be the era of equal opportunity for alternatives like no other year in recent history. Unlike in the past, when a particular strategy could dominate industry performance results and investors’ focus for months at a time, 2011 proved to be the year of underperformance across strategies and sectors. As the election process in the US continues to both weigh on and distort broad market activity, there is no obvious strategy that will dominate the alternative space heading into 2012. It will truly be an equal opportunity year in which to distinguish oneself in terms of market performance.
The past several years have really proven a boon to specialty players who can articulate and demonstrate results in their niche strategy or sector. Of particular note in 2021 is anything real estate-related that can capitalize on a slice of the sector in ways that are compelling and well-managed. But the niche focus is wide-spread and of interest across many markets.
#6: The competition is fierce.
This means survival of the fittest—there will not be room to play for all the wannabe-managers once their start-up capital is spent. As the population of funds declines and 2012 sees a precipitous drop in the number of funds in existence, the opportunities for true stars to get noticed will rise.
The winnowing-out process is alive and well in 2021, and always will be, I suspect. Additionally, with a greater ability for investors to uncover information on-line about managers, any poor results or bad news hurts even more. The choices of alternative managers grows and there are better options to be found more easily with some online research.
#7: The due diligence process is not going away—embracing it early on can work to make you a stronger candidate for investment.
Along with the additional interest in alternatives comes tighter scrutiny on the vetting process. Emerging managers who pay attention early on to this necessary and essential step can leverage the evaluation to separate themselves from the herd. It makes no sense to dread or seek shortcuts in the due diligence process. Embrace the experience and be prepared to make the process a credit to your worthiness as an investment partner.
This is absolutely still true, perhaps even more so in 2021. Managers must have their I’s dotted and their T’s crossed on all fronts, investment and operational, or they will be eliminated from consideration in most searches. Again, this is where the rise in third-party specialized support services can assist managers in making sure they meet or exceed the due diligence standards expected in 2021.
#8: The educational forum for alternatives is becoming more populated and competitive, hence more widely followed.
With greater interest in finding ways to generate value and performance returns, opportunities in the public forum to get noticed will be bigger than ever in 2012. Emerging managers should develop a plan early in the year to identify appropriate opportunities for getting in front of the audience they hope to influence and attract interest to their approach. Conference forums, roundtables and focused speaking opportunities, targeted interviews and publishing opportunities within financial news channels can all work to attract interest to your overall marketing effort.
The worldwide pandemic known as Covid-19 has presented an unexpected benefit to small managers in terms of leveling the playing field for communication efforts. Smaller managers need to invest in formulating a strong marketing platform online to help develop their presence in the alternative world. Investment in website upgrades have been one of the most popular projects undertaken in 2020 and 2021, as more and more reliance on viewer experience has become a permanent portion of today’s marketing process.
#9: Small managers who promote their ability to leverage nimbleness on opportunities in 2012’s less-covered markets will attract investors looking for new ways to achieve alpha.
Distinguishing your business from the hedge fund giants who have legacy positions and move markets will become even more attractive to investors in 2012. Smaller managers who focus on sifting through less-trafficked data and information can unlock value in the markets that analysts and industry news finds too small to pay attention to on a regular basis. If your approach takes advantage of this situation, showcase how you go about identifying those opportunities when defining your edge.
Again, this past ten years has provided a solid empirical base for those opportunity managers to show real results in their exploitive strategies. If you are one of these types of managers and have done well, promote your results and explain how they can continue in the coming years. If you hadn’t managed this past decade well amidst opportunities that others found, you are probably already out of business.
#10: Strategic outsource partnerships are growing to bolster the strapped internal resources of smaller managers.
2012 will be the do or die year for emerging managers. If you don’t have the bandwidth to get the job done, identify what resources you need and utilize them. With somewhere around 8000 funds in existence, there is no room for mediocrity. If a manager doesn’t have the in-house resources available to execute a strong marketing effort, partnering with outside professionals will be essential to ensure success. It will not be enough to post returns on a database and hope for inquiries. A proactive and consistent effort is the only way to approach the alternative sales process, particularly in 2012.
This practice of balancing in-house with outsource resources is a de facto setup for 2021 in the smaller and mid-size manager universe. There is a wide range of services and price points for managers to be able to right size their needs with their financial ability to pay for them, so there is no excuse for not developing a robust infrastructure to support the investment business.
2011-2021 saw many changes across the globe in how we do business. Flexibility and adaptation are essential to most every size manager in the alternatives world. Those managers who embrace the process and direct the effort in a smart and targeted way stand the best chance of capitalizing on investors seeking alternative options in 2021.