Growing Assets Beyond Friends & Family

There are thousands of hedge funds; more than enough to clutter the competitive landscape. The same is true for the non-hedge fund space. The majority of these are emerging manager-sized investment boutiques. While some of these firms will prosper, many will not. 

So, what is it that enables one money manager to grow and retain assets while a competitor cannot? 

Is performance the sole answer? Of course not. If that were so there would be but a fraction of the number of money management firms there are. While performance is a significant ingredient in the formula for success in attracting assets, it is just part of the equation. 

As an institutional investor was quoted in the financial trade press as saying, “I am not going to buy a track record. I want to buy an investment process.” Remember that comment. It lies at the heart of what you are selling. 

Is access to distribution channels the key to success? That’s important, too, but just because a money management firm’s products are available through a distribution channel doesn’t make demand pull exist for those products or mean that the channel is proactively soliciting for investors in the firm’s products. 

Marketing is the other major factor that impacts a money management firm’s ability to grow and retain assets. Marketing does more than “get the word out”. It’s what gives a firm its identity and positions it in the eyes of the marketplace of investors, advisors and the media. When marketing is given short shrift by a money management firm, its ability to attract and retain assets suffers. 

There are two parts to marketing: sales marketing and communications marketing. Sales marketing is about the process of selling to prospects and their advisors. A salesperson or team, whether in-house, third-party marketers or broker/advisors, is identifying prospects, making contact, giving face-to-face presentations and managing follow up throughout the selling cycle for turning prospects into investors. But what is it that the target audiences are told? That’s communications marketing. 

While good communications marketing cannot help improve your investment performance, it can help you have higher impact selling. Communications marketing is what is used to get people to buy into the investment products the firm is selling and the process it uses to manage money.  

Most boutique money management firm owners begin by having investors who are friends and family; people who already thought well of them and trusted them. This is the low hanging fruit, pedigree-based buy-in. Once these money managers begin marketing to strangers, however, they often find themselves getting a much chillier reception. 

As one boutique money management firm owner confided in me, now that he has seen how tough it is to interest strangers in his firm and convert them into investors, he realizes that he could have talked Jabberwocky to some of his friends and family investors and they still would have invested. They knew him and, in their minds, that was enough. However, selling to family offices, fund of funds, endowments, foundations, financial planning/investment advisory wealth management firms that invest on behalf of their clients, plan sponsors and their consultant gatekeepers is another story altogether. 

It is an error to assume that what you as a portfolio manager could get away with in winning allocations from friends and family contacts would work with the sophisticated investor who is an educated, jaded, skeptical and sometimes ornery prospect. 

In order to out-market competitors that deliver performance similar to yours, you need to make investing with you the more defensible decision. An important starting point for this is to first prepare the detailed beyond-the-numbers information that due diligence vetting will focus on, before you make initial contact with a sophisticated investor who is neither friend or family. 

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© 2023 Frumerman & Nemeth Inc.

Bruce Frumerman is CEO of Frumerman & Nemeth Inc., a 35-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.