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Comment: Asset Management – Fund Boutiques, Distribution, and Hidden Agenda

“A lot helps a lot” is the common sales philosophy of many independent asset managers. The more calls, the more appointments, the more tickets – this is often the unspoken acceptance of this approach. The result is a high density of appointments combined with a large number of minutes of conversations reveling in the greatest hope: “Pension fund shows great interest in our approach. Resubmission in three months. New appointment in October” etc. The question arises whether this philosophy fits all fund boutiques. It is often forgotten that an average performance, no matter how “penetratingly” communicated, is by no means of interest or favor with most investors. The sales employee can hardly be reproached here, he is part of the system: sales targets, deadlines, reporting, conditions for bonus payments are different factors that play a role here. What could have been overlooked in this approach? Are there perhaps alternatives to the well-trodden paths in sales?

Asset Manager and Consulting

The complexity of the product and service offerings differs for many companies. There is often nothing to be said against the “mass approach” mentioned above if you are the market leader in your segment or can often offer outstanding performance. How many providers are there in the market, permanently? Every investor would be happy to receive a virtually unrivaled service (portfolio management, consulting). The question arises in all clarity: As a manager, do I have “average” to good skills – how do I draw attention to myself? Usually – partly insinuation, partly practical experience – this is often thought of in the context of the usual product orientation of fund managers: The more calls I make, the more page-long comments and fact sheets I send to investors, the more likely they are to become aware of my strengths. (A question in passing: How many of the investors or prospects read the mass sent fact sheets in your mailbox?). For managers who, in addition to solid performance results, offer added value in advising investors, this path to visibility can be a very long and rocky one.

Fund boutiques – undiscovered pearls and formats of investor dialogue

Many independent asset managers seek dialogue with their investors. To be fair, dialogue can mean three things:

1. “Dear investor XYZ, I listen with interest to where your problems lie. Then I will always suggest my product as the perfect solution at the end of the dialogue”.
2. Dear Investor XYZ, I am interested in the content of your current topics. Let’s work together in the sense of a portfolio management mandate or we can create another, customized solution for you”.
3. Dear Investor XYZ, I would like to enter into a dialogue with you to improve my range of services, and we both benefit from an exchange of ideas.

Approach no. 1 leads in practice to the reason why many investors do not necessarily like to have an “open exchange of ideas” (Hidden Agenda) with the salesperson. The added value of the offer is often missing. Time is precious.

Approach No. 2 can appear quite attractive as a dialogue offer if the corresponding fund boutique has excellent know-how – for example in the areas of risk management, asset allocation, of course in addition to good performance results in mandates. If these skills are visible to the investor and there is also a know-how bottleneck on the part of the investor, the fund advisor has a very good opportunity to present his strengths. Be it by accepting to accept a presentation appointment or at least by permitting to provide additional information, with the permission to contact him/her by phone first.

Approach no. 3 represents the “top class” in sales, so to speak: As a supplier, I am aware of my strengths, my know-how. I offer added value in the dialog. My counterpart opens up his or her perspective to me in a very “relaxed” and relaxed dialog. You present your expertise. If all the parameters are right for both sides, there is usually also a greater interest on the part of the investor to take a more detailed look at the strengths and “problem-solving skills” of the fund boutique. If there is still a fund with a convincing performance there anyway, there is an increased chance of receiving a mandate – fund or advisory, etc. – in the longer term.

Of course, none of these approaches guarantees a reliable result according to the provider’s expectations – for some investors, “small” fund boutiques often only appear on the radar from a certain size upwards. Another issue worthy of discussion is which players in the field of sales or business development think in the long term. NB: There is no question of whether the players are at fault or not; a market overcrowded with products builds up its form of pressure and short-term thinking, both among providers and investors!

Digression: Core problem of the industry

Many “ingenious” marketing ideas in the asset management industry often come to nothing in the medium to long term. The market is overstaffed. There is a small percentage of excellent portfolio managers. A lack of performance can be concealed for a while by marketing actions. In the long run, at least in the institutional business, the figures speak their harsh language about the manager. This is a challenge the industry has to face. Good figures are a hygiene factor. The constant, cyclical advertising of various investment topics cannot hide the fact that the industry is at a crossroads. Classic asset management appears to be a low-margin business. Every euro spent on marketing/sales is important for overall profitability. The following old model should be questioned: “I set up funds because market entry barriers for portfolio managers are low and pass the hot potato to the salesman”.

Know-how, complexity, and visibility

Performance is a hygiene factor in asset management. All dreams of the “super-salesman”, who can sell even the most average product to institutional investors, are rather the result of wishful thinking and underestimating the intelligence of fund selectors. Right, a good thing sells easier, but not by itself. Also true, many good things are so complex that they are not even easier to sell. One problem is that fund boutique in particular have consulting skills in addition to fund management skills from which investors could benefit. Certain houses can competently serve as sparring partners for the institutional investor in the most diverse cases. In contrast to classic asset management consultants, there is possible – and certainly controversially debatable – one advantage: in addition to the theory in consulting, these consulting asset managers have, so to speak, “skin in the game”.

As nice as all this may sound, many of the mentioned companies with these skills are not known in the market. Sometimes it may simply be because their message is being directed into the wrong channels or simply communicated in an indigestible way, in the sense of incomprehensible, too technical, for many investors or prospects. The solution is simple, perhaps it seems too simple to many of these houses, even though it has been tried and tested in practice: independent communication channels, consistent use of investor input, honest direct approach to investors with dialogue offer.

Investment companies – complexity as a dialog advantage for customers

Many of the providers of complex services in the investment company sector prove that services in need of explanation often offer the possibility for contact initiation and dialogue. One must perhaps remark at this point: When fund managers often talk about PR and visibility, they do not necessarily mean a long-term branding campaign. More often business development is meant and PR is said.

Capital investment companies such as Universal-Investment, Axxion, Ampega or Union Investment, etc. naturally operate press relations – long-term oriented. This is helpful as a channel in dialogue with customers and the public. Communication with customers is more focused in this area by demonstrating expertise in areas such as fund launch, reporting, and risk management. Reporting tools with a direct link to investors, white papers, studies, customer magazines, etc. with an appropriate specialist focus – in contrast to or as a welcome addition to many standard PR measures – are popular “showcases” for demonstrating specialist expertise. Since the B2B field represents the opposite side, this is also an attempt to offer added value in terms of content. Particularly since many services in this field are now subject to fierce price competition – although the price should not always be the decisive factor when choosing an investment company.

Conclusion

The market for average fund boutiques, and of course also for group-linked managers, is becoming narrower in times of increasing market transparency and the triumphant advance of many passive investment formats. In the future, the market may appear to be comfortable and profitable for those houses that make their extraordinary capabilities, even those that go beyond pure portfolio management, visible to investors. Risk management, the handling of passive investments in asset allocation, the integration of various forms of investment products (ETFs, hedge funds, private equity, etc.), systematic yield and risk assessment – all these could be added values that could make the investor curious, so to speak, to engage in an unencumbered dialogue. My personal, independent experience is frequent: mutually fruitful relationships often arise from an initial exchange of ideas on topics that are of interest to both sides. Which asset managers in the market will consistently pursue this approach in the coming years? Content beats pure product thinking; where products fit, a fruitful exchange of ideas often increases the chances of winning a mandate!


Source: www.institutional-investment.de
Photo: www.pixabay.com

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