Comment: Private Label Funds, Sales Myths and Goethe

“One should not search for anything behind the phenomena. They themselves are the message.” (Wilhelm Meister’s Journeyman’s Years, Goethe). On many occasions, many initiators of funds can hardly believe their eyes when some time after initiating their fund the situation is as follows: set up fund, employ marketing man and scarcely any growth in volume.

A typical reaction in a development of this kind is to immediately replace the marketing employee or a make a hectic change in marketing strategy, for example, “from tomorrow on we will concentrate more on the institutional customer segment”. Another reaction could quite well be to examine our own approach critically, even going as far as to rethinking our own business model. For example, there are relatively large numbers of fund managers, family offices and other initiators of funds who may have found a successful strategy limited to the private customer sector – or who have quite simply followed a simple and possibly boring path to success.

Investment Companies and the Bottleneck Factor

Many initiators of funds regard investment companies such as Universal-Investment, Hansainvest, Axxion and others as being the first place to contact in the conception and introduction of a private label fund. Here, however, a critical bottleneck factor is often the subject of seed money and that of marketing. These are often areas which are incorrectly regarded as being too strongly related with one another. If we take the first step of regarding the subject of seed money as being solved, then the marketing question arises for the initiator of the fund – and this is the area in which we start flailing about. On the one hand, the dialogue with the “service units” of various investment companies can be started (for example: Universal-Investment/UVS, Axxion in “special cases”, etc.). On the other hand, work is often undertaken in developing our own marketing apparatus. In many instances it is worthwhile discussing the sense and purpose of this development.

Marketing in the case of funds boutiques – three possible questions

Areas such as marketing and the role in the marketing mix can be broadly discussed. At this point we can ask three simple questions on the subject of marketing:
1. Does the initiator of the fund have the right man for marketing?
2. Does it make sense to expand marketing?
3. Is there an alternative way of promoting marketing?

Something to note: in the funds boutique segment it is often forgotten that three major factors for success are depicted by the parameters of performance (risk adjusted), marketing and PR. It is also interesting to note that many initiators of funds like to talk about hard factors for marketing success (number of telephone calls, number of appointments, etc.) or the PR success (articles – where and how often published, etc.).

The performance factor which is relatively easy to measures is freely and tolerantly discussed especially in the case of “marketing blockades”. As stated in the quotation from Goethe above, it is often the case: the market has often reached its verdict on the manager, but he does not want to hear it. Perhaps it easier to save face by placing the blame on marketing. On a long-term basis, however, this approach is perhaps far less than optimal.

Myth of Marketing

“A good marketing man can sell anything” – a statement of this nature should be examined more critically especially in institutional/semi-institutional marketing. If investors orient themselves on hard facts (performance/volatility/track record) then even the best marketing man has no easy life. “Appointments, appointments, appointments” means that for a fund with insufficient performance the marketing man is a good relations manager and gets any number of discussions over a cup of coffee. It is by no means certain that the resources will automatically flow for the fund initiator as a result. On the contrary, – when “sales” is too penetrating this can result in the marketing employee landing in the investor’s drawer for “sales with footsore products” and is no longer put through the next time there is a telephone call. Sometimes we really have to admire the courage and the stamina of some marketing men.

A possible subject: in the case of numerous supposedly unsuccessful marketing staff what we end up with is – that it is in fact really the case of a “bad” product. For this reason, it is often more the case of figures and benchmarks than the appearance and quality of the new lounge suite!

A lot helps a lot – or it simply fizzles out

Funds with insufficient quality (i.e., average to poor manager performance) will nevertheless prove successful under certain circumstances in the retail sector when entering large marketing networks, depending naturally on their definition. When a “small” fund initiator expands his marketing team then this ends generally only in a development in cost structures. It often happens that we continue consequently along this wrong path. The complete opposite – successful, established funds boutiques in the institutional market: product quality is good to very good, funds initiators among the institutional are presentable, and, in optimum cases, there is a high degree of attractiveness for the media as a result of the expertise available and an above-average interest in communication. A possible assumption: a lot helps a lot – but only in the case of those who have a lot to offer!

Alternative Paths

Many initiators of funds who wish to enter institutional marketing to a greater extent with “good” products should begin by asking themselves the question of whether they are long-distance runners or whether they are sprinters.

Simple things are often quite good: before deciding on whether or not to expand marketing activities, we can begin (internally or externally) by speaking to an appropriate number of investors. As a rule, a typical widespread questionnaire action by specialized companies does not replace the personal discussion with and the feedback from potential investors. Research can make sense, but nevertheless it has its own particular place in the process chain.

It is always surprising with what alacrity some fund initiators employ a marketing employee simply because the initiator has spoken to three supposedly enthusiastic potential institutional investors. As a matter of interest: funds launches often begin this way – a couple of pleasant discussions are seen as a direct indicator for the success prospects of a possible subsequent seed money search. Naturally, this appears to be exaggerated, however things have often proven to be even more colorful in practice. Some successful funds initiators often appear to do things correctly without thinking, a variation as example here being: first of all, “good” performance is generated (concentration on what is important, makes things much easier for marketing), then work is undertaken on the image/awareness. This is then followed perhaps by positive awareness in the field of ratings and rankings, followed by more publicity; accompanied here in advance by a more in-depth involvement with the subject of the needs of institutional players.

Evaluation of potential, budgeting and employment of resources (marketing – internal or external or, external on a temporary basis) – all of this combined with a great deal of staying power and patience. You are right when you say that sounds too simple; perhaps this is the reason why so few players on the market follow this path. One possible assumption in the case of these less successful companies: better to have complete involvement with less homework instead of approaching the project of the institutional player patiently and circumspectly – through this rule of thumb a marketing flash in the pan appears to be guaranteed!

Trend – where can the journey take us?

The foregoing thoughts are not intended to mean that there are only good marketing people and product providers with “inadequate” products. Naturally there are top products which remain on the shelf and naturally there are marketing people who, when employed in an alternative form, would be voluntarily or involuntarily happier. However, it is often forgotten that errors are made when we begin to give thought to marketing (target groups, resources, time schedule, etc.). Many asset managers who, for example, are members of the VuV (Verband unabhängiger Vermögensverwalter Deutschland e.V.), the German association of independent asset managers, have deliberately or inadvertently decided to operate according to the motto, “Let the cobbler stick to his last!” Success in private customer business with high margins is nothing to be ashamed of, on the contrary. When a solid basis is developed, the next step is often organic and the step taken anew into the area of the institutional player. When things have reached that point, then the “organic” phenomenon occurs in finding the suitable marketing manager: namely, every Jack has his Jill!


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