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 wrote this piece under the title ‘The Quest for Est.’ A decade on, I wanted to revisit its topic, as I believe that, though the alternative universe is much more crowded today than in 2013, the points made within this piece are as relevant today as they were then, if not more so. Let’s see if you agree.
It’s only natural: people want to be tagged with being one of the ‘est:’ the biggest, the brightest, the fastest, the longest. Claiming one of the coveted ‘ests’ means that you stand alone, that you excel at something. We worship ‘ests’ in all their permutations on various leader boards—Super Bowl champion; Triple Crown winner; Nobel Peace Prize recipient; Copley Award winner for scientific achievement; Medal of Honor recipient for the US military— and so on. It means you own the ultimate ‘est:’ being the BEST.
Of course this aspect of human nature is no stranger to the alternative investment world; one may argue that it is amplified to a level that leaves the vast majority of the field out in the ‘est’ cold. After all, by definition, being the best is awarded to one, while rendering the remaining 99.9% out of the running. The reward: money. Not in prize terms necessarily, but in assets—either of the performing kind under management, or in the percentage of new assets gathered by virtue of being one of the elite ‘ests.’
The industry tries to alleviate the definition restriction of ‘est’ by segmenting and measuring the alternative universe in categorical excellence: by sector, by strategy, by size, by region, etc. But despite this, there still remains a fairly small subset of ‘ests.’ This fosters a hard-bitten drive to own one of the more common ‘ests,’ or at least be in the running to knock a reigning one off its seat. It seems the industry has gotten comfortable and perhaps a bit stuck on identifying and valuing a rather small set of attributes, such as the biggest, the longest, the brightest, etc. That contributes to difficulty for managers outside of the golden ‘est’ zone to get the attention they perhaps deserve. The following offers up some less-considered ‘est’ qualities for consideration by the alternative industry, to widen the field of ‘est’ holders and the acceptance of what constitutes a superior option in investment management.
The Discreetest | The Honest | The Loyalest
All of these qualities speak to the ability to honor the investor relationship with the manager. Investors have been loud and clear in their desire to be heard on the need for full and open communication with their alternatives managers. If a manager, small or large, with solid (read: non ‘est’) performance and a demonstrated competence at their offering focuses more internal efforts at respecting the investor relationship and owning one or more of these ‘est’ qualities, it will serve both manager and investor well. It could likely lead to growth opportunities in the form of additional investment, longer staying power through challenging market cycles, and increased referrals from satisfied investors.
The Smoothest | The Precisest | The Securest
These attributes assist in outlining the path of performance, which, while perhaps not top-of-the-heap in absolute numbers, can serve to define and recognize the quality of return for investors. The smoothest might represent the consistency of return and lack of excessive volatility, which often showcases a weakness in approach. The precisest could be used to illustrate the accuracy of execution for implementing a strategy within a segment of the market, and the soundness of a methodology a manager takes in investing. The securest, while perhaps a difficult adjective to pass through a compliance review, could support the explanation of the integrity in idea generation and continued investment opportunities in which to execute an investment strategy. Or it could represent the quality of a technology platform essential to the implementation process, or the outsource relationships, which augment the management strength of the investment team.
The Specialist | The Savviest | The Wisest
For the sector of alternative managers who stake their claim on specialty funds or special situations, these monikers can add tremendous value. As the appetite for ‘rare thing’ funds grows—vintage cars, wine, fine art, etc.—being able to own one of these adjectives can assist with making the case to investors that a manager can both identify the strong deals, and can accurately assess how to price investments in the space. For the special situations offerings, these adjectives can serve to emphasize how the manager defines such situations and enters and exits them accordingly.
The Boldest | The Earliest | The Widest
For those managers and investors willing to accept more risk in their return profile, there exists a whole subset of managers who take on the investment ground where others fear to tread. In these cases, playing up the ability to range farther along the risk spectrum to attain results can be an attribute. To be first at the table for investing, or able to be considered one of the boldest or widest-ranging seekers of these opportunities, can serve a manager well with the category of investors who expect this type of performance.
There is much variety in the universe of alternatives, and room for many more ‘ests’ than currently claim the title. For managers who truly believe in what they do and how they do it, describing that enthusiasm and conviction in a way that makes sense to their constituents can only help in the quest for capital commitments. Let the suggestions above “manifest” in a better dialogue between the two.