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Comment: Fund boutiques and affiliated asset managers in Germany and abroad

“One should not carry owls to Athens”, in the figurative sense of the fund industry, this would probably mean that many news items would have no news value. More than new products, there are more frequent investment rates, a return of the familiar in a new outfit. Interestingly enough, fund sales and communication often move in similar directions at home and abroad.

Many phenomena from the fund industry could be easily transferred to other industries with a little abstraction, a possible conclusion: If you have a product with “bad” to “mediocre” features, you will have difficulties in communication and sales! (“mediocre” and “bad” are to be considered value-free, simply as a governor for “added value” for the institutional investor that is continuously difficult to convey in sales – many customers approaches, much justification argumentation, pronounced, long-term disinterest on the part of fund selectors). A simple truth, which also applies to the asset management industry, where it is well known that not only excellent fund managers determine the market – which is also like things.

To be fair, it should be noted that the whip of transparency in the fund business, for example, makes life difficult for providers. Does affected domestic and foreign asset managers often draw consequences from their positioning in the highly competitive market in terms of business strategy or the area of communication with investors?

Hooks and loops in sales – problems for affected asset managers

Fund boutique and group-linked asset managers are struggling with the problems of transparency, fixed cost blocks, and the distribution problem of the “resource above-average portfolio management skills”. These topics have different weightings in different organizational forms. Institutional investors can often sit back and relax and use various sources of information (hit lists, rankings, ratings, consultants, databases, etc.). Many of the activities that are currently practiced in the sales area at investment companies would probably be reconsidered (“zero-base budgeting”), if perhaps some irrelevant considerations were not also indirectly effective in maintaining existing structures.

Why should a larger staff still be involved in sales when the days of “short-term performance sales” are overdue to transparency and selector professionalism? If, as a provider, I am not to be found in the top 10% or do not have the potential to catch up here in the medium term – what topic could I usefully discuss with an institutional investor?

Typical pitfalls for domestic and foreign portfolio managers

a) “Don’t call us, we call you!”
If you talk to institutional investors directly (“product feedback”) or at industry events at home or abroad, there are hardly any differences in the perception of management expertise. Houses with excellent performance and an interesting approach (continuity!) – a welcome starting point for direct dialogue. Houses with “mediocre” to “poor” performance and expertise – tough dialogue, hardly any added value in conversation, in parts when directly approaching investors through sales as “annoyance, nuisance, waste of time” (original quotes: Family Office, pension scheme, private banking fund selection): “Don’t call us, we call you! – an attitude of some investors, which does not make life any easier for the distributor of a product with foot problems. Without fault, Sales gets here the beating for the fact that the fund company perhaps did not do the homework with the product conception and/or that the manager has not only short to medium-term a weak phase. An element that communicates with people may be found here: The domestic and foreign salesman go through the same pain!

b) Continuity in “mediocre” to “poor” performance
It is understandable, as in many industries, that organizations develop their own life. When a sales apparatus has developed a certain size, it needs to be utilized to its fullest. It is often forgotten that there are excellent salespeople who cannot turn water into wine even with the best network and investor goodwill. If the product, the manager, the performance does not add any value at all in the dialogue with institutional investors, then the salesperson will get many courtesy and coffee conversations, but no tickets.

Fairly one must say that many clients with the tonnage ideology “dates, dates, dates” on the one hand can load the folder network institutional investors far too much. Up to the effect that one or the other decision-maker says already when contacting the corresponding sales employee or when hearing the name of the asset manager: “Please do not put through, that’s the one who always comes with the foot sick products!

Contrary, this can lead to a boomerang for the asset manager: The own sales force produces nice, many interview transcripts that seem to promise great potential for the employer – with ongoing salary payments, the employee can take his time during this phase to look for a new employer with more attractive performance/expertise, where a bonus payment might also come within reach.

An interesting question at this point, assuming that products of competitors in the same category are definitely “bought”: For example, if a sales employee contacts 200 investors in a certain period and receives consistently negative answers – who is responsible here? The portfolio management due to “mediocre” performance? The manager or the company owner who hired the sales employee and after these 200 attempts suddenly seems to feel the insight that the employee does not have sufficient sales skills? How should an employee “sell” the message to his employer that his product is unattractive to institutional investors? A topic that certainly offers a lot of content for dedicated and controversial employee discussions and sales team meetings. The ability to communicate, teamwork, and also the ability of managers and specialists to deal with criticism can find a good testing ground here.

c) “Homework market entry” – indirect approach and lack of efficiency
Many missteps in market preparation by domestic and foreign asset managers often have simple reasons. A product has been designed on a “greenfield site”, now the sales department has to live with it – and possibly also the completely disinterested investor. Unrealistic expectations in the fund launch – if the managers have invested the first five million at the beginning, for example, then the rest will also work in fundraising. This is also a popular approach with foreign asset managers: Visit a few conferences, talk to a few competitors (since many conferences have little investor presence at the moment – “more hunters than a game”) and then try to contact investors in different target markets by phone randomly to get appointments. This is also a procedure that occasionally scores hits. Opportunism versus structured market development, frequently encountered, but usually not the fault of the respective sales employee: “Go to Germany, Switzerland, Austria once and make sales. Then you will get a budget to work these markets systematically and sustainably”, this is how the unofficial strategy could be described for some foreign asset managers. The results often speak for themselves: a few phone calls, a few appointments, then the opinion that Germany, for example, seems to be a very difficult market after all. It’s a pity because in this way many good asset managers never appear on the radar screen of investors where they could offer added value.

It could be straightforward: For example, you contact (!) a certain number of target investors beforehand (!), from whom you get candid feedback: Yes, No, Maybe – often more efficient, more direct, more goal-oriented than pure trial-and-error. With the danger, of course, that a clear “No” is the answer. Can the domestic and foreign product providers live with this?

Pitfalls – is there a patent remedy to avoid them?

First of all, of course, there is no patent remedy. Simply put, the author is well aware of his limitations of knowledge: One consequence could be that you change your business model, use communication or your network differently. The pressure on many asset managers will also increase because of regulation. Business models will be increasingly questioned. It is often forgotten that as a “mediocre” to “bad” portfolio manager, you have not consciously fought for this position. The “misfortune” in the institutional sector is professionalism on the investor side and transparency. In the private client sector, I can make up for many deficits through service, advice, etc. – the survival of the private banking sector in many segments shows the way forward: Even average performance can be compensated by good relationship management.

Another way for certain managers could be to increasingly position themselves as advisors in a segment. A good coach does not have to be a good soccer player. If he is not convincing to all degrees as a footballer (portfolio manager), he can at least claim that he not only knows in theory where the pitfalls in portfolio management lie, which underlines his credibility. With substance and “creative” communication, this repositioning is sometimes successful.

A rather radical way could be that certain managers might continue to “run” their products, perhaps for private customers. To address institutional customers, the distribution of excellent third-party managers could be interesting. For example, if you have been approaching institutional providers for three years without much success, you may have an excellent database. The previously approached investors might be pleased if a new start of communication is made with content that seems attractive for further discussion (“good portfolio manager & interesting approach”).

Investment companies and classic custodians can also play a positive role in finding solutions. Companies such as Universal-Investment, AmpegaGerling, Hansainvest as well as State Street Global Services, Northern Trust, Societe Generale Securities Services, and many others: Good advice on fund conception and fund launch often prevent managers from making false starts. Sales and marketing services for fund initiators in German-speaking countries could also be an attractive field for market entry into Germany – classic investment companies in Germany and Luxembourg can currently play an even leading role. The classical Custodians concern themselves in beginnings with these areas, find themselves probably at present less in the role of a Full-service Provider.

Conclusion

The facts stated above are nothing new in the industry, one carries “owls to Athens” – for certain groups in the market.  Other group’s behavior in the market shows these facts may not be entirely clear to some decision-makers: Market is completely overstaffed, investors want top products, products are transparent and the attention span of investors is becoming shorter for alternative “problem solutions” in the asset management sector. Many investors, but also sales staff, are aware of the above facts, and sometimes they suffer from these facts or restrictions. It should perhaps lead less to the feeling like in a well-known fairy tale, where the innocent child says at the end – transferable to portfolio management without added value: “They are all naked!


*) Markus Hill is independent Asset Management Consultant in Frankfurt am Main.

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

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