“Hang a golden collar around a pig, but it will remain a pig”, this or similarly, many measures in the marketing of funds can be aptly characterized. Although there is far more interest in facts in the due diligence of investments, especially among semi-institutional or institutional investors, many providers of “mediocre” asset management products still seem to believe that “the sales department will do it”. Where are the weak points in such an assumption? Does a lot help a lot? Must one continue to wander well-trodden paths?
Business models of independent asset managers
Independent asset managers have gained great popularity among private and institutional investors: Fund boutiques and independent asset management are on everyone’s lips. “Small” providers are now attracting increased media interest. Many addresses have managed to position themselves well with private investors in the long term. Reputation, trust, and customer proximity are often arguments that can make a difference in the battle for the customers of established banks. As a rule, many of the successful providers have not followed the path of pure “performance marketing”. Customers who “only” enter the market in the short term because of outstanding performance often quickly leave the customer relationship even if performance is unsatisfactory in the short term.
A certain group of fund boutiques that are successful in the private customer business often try to score points over a long period with their products in the institutional or semi-institutional investor segment. There are successful players in the market – for example, Acatis, Flossbach von Storch (FvS), and DJE. It is often forgotten that the success of these companies is based not only on their long-term performance histories but also on professional structures in investor communication. Long-term thinking, “clean” processes, employee qualification – all these factors play together here.
Competitive advantages for fund boutiques with “medium” visibility
“Don’t you know anyone who might be interested in our approach”, “We have no competitor and are unique in the marketplace”, “Don’t you even have an idea?” – these are some of the typical inquiry patterns you hear from independent asset managers who are still looking for their position in the market The content of these statements does not necessarily say anything about the quality of the asset managers.
Of course, many addresses will always have difficulties in the long term in approaching institutional investors in the open field with full performance visibility. In contrast to this, there is a large pool of currently not so well known “emerging managers” who are unable to quickly build up large fund volumes, for example, due to a lack of marketing infrastructure or simply because of the current phase in the corporate cycle: With a promising address, it may simply be that the three-year track record has not yet been reached. This simple fact often results in longer periods of stagnation in the growth of the fund boutique. The leap from the first five million to ten million and more fund volumes often seems very difficult and “tough”. Reasons for this can be the asset manager and his skills, but also simply the lack of access to funding boutique-affine investors. Another aspect may be: The “emerging manager” convinces the institutional investors through his performance in the special fund mandate, and here too, a great deal of effort is required in the area of investor communication. Even a “small” mutual fund licensed for public distribution can often serve as a showcase for investors.
Competitive strategies in asset management
Michael Porters, “competitive strategy pope” from the USA, input for competitive advantages can be briefly and concisely applied to fund boutiques, with all the weaknesses that have to be taken into account from product-oriented marketing approaches for the service sector. Cost leadership does not appear to be at the forefront of orientation in the fund boutique segment. Differentiating features can also be increasingly presented in communication. Assuming a satisfactory level of performance, management expertise, the investment process and the network are of course potential differentiators. The niche strategy is discussed intensively. Opportunities and risks are close together. Depending on the degree of specialization in an asset management segment (e.g. product or approach), many “small” providers lead a comfortable life here. With one proviso: If the segment, style, etc. is not running, or if the product class is not fashionable at the moment, then there must also be the willingness (time, resources, etc.) to be able to bridge major periods of thirst.
The situation becomes critical when there are no permanent competitive advantages. Like Porter, Carlos Jarillo (“Strategic Networks”) and Hermann Simon (“Hidden Champions”) also emphasize in their works the importance of the existence of permanent barriers to market entry for long-term competitive success. The thoughts of the Harvard Business School are reflected in this thinking just as much as the “down-to-earth” thinking of Warren Buffett and other, classic value investors (“Economic Moat”).
A large number of independent asset managers are waiting for the big breakthrough that may not come, overlooking many other opportunities in the market that could be seized with a little creativity. In the end, this would mean taking a critical look at their business model.
Investment companies focus on market development.
Many of the investment companies specializing in private label fund launches have been promoting the growing fund boutique segment for years. Universal-Investment, Ampega, LBB Invest, and many other addresses often also provide support in marketing the funds. Caution: here too, active marketing is carried out with promising candidates. Even the own arm of the sales support team cannot work miracles with a five to ten million “heavy” fund. As a rule, these houses also prefer funds that have a proven track record, performance, and name. This is understandable; part of the grassroots work lies in the first stages of distribution with the respective fund boutique itself. In this case, the investment company itself has a natural interest in the fund initiator also supporting the distribution of its products efficiently.
There are no patent remedies for “up-and-coming” fund boutiques. Some houses with good networks in the institutional investor sector are easier to find seed money at the beginning and in subsequent sales steps, provided they have the necessary capacity. Successful addresses in the value investing sector or in the healthcare segment prove this. Not everyone is happy with such good starting conditions. The majority of fund providers with small fund volumes still find it quite difficult to do so. The question before the ever-increasing trend towards regulation is whether there will not be more market exits sooner or later. For the other houses with the attributes “Small & Unknown” the “art of drilling the thick plank” still applies!