Toll Free:
877.456.EFSI (3374)
The experience of sophisticated investors over the years regarding hard to predict bad news — financial crisis, revelations of fraudulent behavior on the part of some money managers, and occasional poor industry wide performance among alternative strategy portfolio managers — have contributed over the years to extending the length of the selling cycle (the cycle through which a potential investor moves from prospect to allocator).
The majority of hedge fund managers should look to greatly increase their level of communication with both current and potential investors if they wish to make it through the due diligence gauntlet of skeptical sophisticated investors.
The odds of meeting a prospect, telling them your story and having them then hand you a check are nil. It is going to take months or years to convert a family office, endowment, foundation, institutional plan sponsor or investment consultant gatekeeper prospect into an investor.
Success in converting sophisticated investor prospects to clients requires having a well-strategized roll out of information. One of the most important necessities for managers are building a communications and sales marketing strategy that allows for multiple points of contact, with increasing information sharing, over an extended sell cycle.
The first requirement for this is having a cogent and compelling story that is told with consistency using the most appropriate marketing tools.
The storyline needed for a Brand identity
The content that a money management firm has to communicate in its marketing materials can be broken down into three types of information: data, staff bios, and the story of how they invest.
While all of that content is important to potential investors, it is the story of how a hedge fund invests — their investment belief system and the process they follow in managing the portfolio — that enables a manager to both differentiate him or herself from competitors and give prospects the comfort factor they require to commit to investing with the investment firm. This is a firm’s ‘evergreen’ story: the information about how it invests that will be as true five years from now as it is today.
Branding success for a hedge fund is dependent upon its ability to educate and persuade people to be aware of, and buy into, how the firm invests. A well-crafted storyline about how a firm invests enables a hedge fund to present a branded identity, rather than appear commodity-like, as most money managers are perceived. For this, a hedge fund needs to create a cogent and compelling storyline about how it invests, and this must be communicated in a manner that is sensitive to the mood and perceptions of investors in today’s market environment.
For many, however, this is much easier said than done. Doing this right requires developing how to best tell the investing story with consistency, and applying it to a range of sales marketing efforts, including obtaining third-party endorsement for and increased awareness of a firm’s investing process.
Having the ability to communicate over an extended selling cycle requires having a more detailed explanation from the hedge fund manager about the investment process than many realize. The investment firm’s communications needs to take three issues into consideration in telling that story:
Don’t Be Vague
Reasons to doubt the efficacy of a manager’s claimed strategy and a commodity-like lack of differentiation from the pack are two common grounds for rejecting a money manager that we hear. These impressions tend to be formed when the prospect is given too little — and too generic — information. The culprit is oftentimes a hedge fund’s overly abbreviated and vague sounding explanations about its investment process.
Such insufficient explanations about the investment processes behind hedge fund strategies are more often the result of poor communications skills, rather than because managers are trying to keep confidential a truly proprietary element of their portfolio management. Yet a manager’s lack of good communications skills is not the first thing that will come to mind for prospective investors who are presented with hazy explanations about how a portfolio is being run.
Address The Current Market Environment (and others)
Many investors found strategies that they had been invested in previously did not perform well in most, let alone all, market conditions. They want to know a manager’s thinking about how he or she plans to steer the portfolio through uncertain times.
The storylines and marketing materials of many hedge funds don’t make mention of how they plan to navigate their portfolios through different market environments. Will strategy implementation remain the same through inflationary times, bull market runs when there are many overvalued securities or sectors, the effects of geopolitical crisis and the like? Or, do such factors trigger changes in risk management actions and/or security selection in running the portfolio? Those hedge funds that address such topics will engender comfort factor among prospects and further differentiate themselves from their competition.
Don’t Get Lost In Translation, Put It In Writing
In almost every case, prospects who are pitched in a sales meeting are going to be retelling what they know about the hedge fund to others involved in their decision making process. They will be speaking to an investment committee, a spouse, an accountant or to an attorney. And they will be retelling the hedge fund’s story to that person or group. So, one of the important sales missions a fund has is to reduce the odds that a prospect will mess up retelling its story.
A fund’s marketing materials are what tell its story when the manager is not there and are what a pitched prospect will pass on to colleagues when that fund is under consideration.
A clear and detailed written explanation about the investment process and how the manager thinks can improve a fund’s odds that it has differentiated itself from its competition and reduce the odds that the prospect will mess up retelling its story to others. A monthly performance tear sheet and a pitchbook with performance charts and graphs information will not suffice.
Hedge funds that reexamine and refine the story they have to tell prospects, and how they communicate it verbally and in writing — over time and through different means — are those who will be most likely to make it through extended selling cycles, out-market competitors and win more new mandates.
**********
© 2024 Frumerman & Nemeth Inc.
Bruce Frumerman is CEO of Frumerman & Nemeth Inc., a 37-year-old financial communications and sales marketing consultancy that helps financial services firms create brand identities for their organizations and develop and implement effective new marketing strategies and programs. Frumerman & Nemeth’s work has helped money management firm clients attract over $7 billion in new assets, yet they are not third-party marketers.
Frumerman & Nemeth is internationally recognized for its work in crafting for clients the beyond-the-numbers story of how they invest — content that investment committees actually discuss, debate and vote on behind closed doors when considering firms on a short list for potential investment. Importantly, this is required due diligence content that cannot be communicated in pitchbook format.
Frumerman & Nemeth’s work also includes providing strategic consulting on product and strategy-specific branding, crafting the required strategy-specific content detail and designing and producing the marketing tools needed to make it through the two-month to two-year institutional selling cycle. Clients also employ Frumerman & Nemeth to help promote the intellectual acumen of management — helping them get speaking opportunities, write and give speeches as panelists or stand-alone speakers at industry conferences, and through media relations marketing services.
Mr. Frumerman can be reached at info@frumerman.com, or by visiting www.frumerman.com.