Compelling Story Required
06/25/21 | Eric Alexander
As chair of an investment committee managing a college endowment, I see many active manager presentations. I remember very few.
While these presentations check all the regulatory and housekeeping boxes required of our consultant’s due diligence team, they rarely explain in a concise and compelling way how the manager intends to deliver returns worthy of their proposed fees. I am usually left asking why the fund would be a better choice than a far less expensive, passive alternative?
In Competing Against Free, my partner Marc Reinganum challenges managers to “implement their best ideas in their purest form, knowing that their clients can acquire however much diversification and risk control they want for essentially free.” Competing against free has raised the bar on communications as well.
Asset owners need to understand clearly and quickly why your firm was created and how your products are superior to index-like competitors. Key elements of your firm’s story need to be accurately and enthusiastically repeatable by intermediaries and gatekeepers even before you reach the asset owner. Presentations of your story should flow effortlessly and be memorable. That story, more so than the name, tagline, or your firm logo, is the essence of your brand. It’s what will convince a miserly investment committee chair to support spending an additional 50-100 basis points for a chance to enhance the performance of an endowment.
My review of marketing materials and websites of most asset managers reveals a willingness to compete on terms dictated by the mega firms that set the tone on pricing. Reputation, legacy, a commitment to customer service and risk management, essentially the table stakes of the game, are featured messages, while the details of investment process and the specific roles and contributions of team members are hardly explained. The result is a sameness and commoditization of messaging that allows cost to rise to the top in the selection process.
By focusing on these legacy elements of their business, managers forgo the opportunity to present the dynamic aspects of their firms that are of greatest interest to their most important audiences. Institutional investors and consultants/intermediaries care primarily about the distinct attributes of the firm most likely to influence future performance. We want to understand the research agendas, analyses and investment processes that drive results. Yet, few firms are able or willing to clearly articulate these elements in concise, compelling language that can be easily understood and repeated by the gatekeepers essential to their distribution. Other than providing historical performance, the most basic questions, what makes you different and what makes you better are rarely presented.
Firm owners would do well to ask these questions, first of themselves, and then of other members of their teams. If they are not excited by their own answers and if they are not hearing a consistent story from their colleagues, it might be time for a candid, thoughtful assessment of their offerings and how they are being positioned to investors.
Large passive managers have made and proven their point over the past decade in the eyes of many. They have provided competitive returns with broad, diversified market exposure at very low cost. Their story is easy to understand and convincing. It is now your turn to convince us that your strategy is distinctly equipped to help us succeed today. We will remember.
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