Within the very insular world of asset management, we joke about fund managers being like artists. To be fair, there are actually some pretty good similarities. If you know the art market, you know that there are a lot of starving artists just like there are a lot of small fund managers; there are also some very successful ones. What makes the two trades similar is that both industries are product driven businesses, as opposed to demand driven. Most managers are specialised in a certain area and do not look at segmentation and market demand; they just do what they do and hope people will like it. Artists are similar – they have a style and hope that it will attract commercial appeal. For both trades, the artist and the fund manager look internally for drive and inspiration. This is the polar opposite for most other businesses where the target market is defined and the marketing/sales campaign is fine tuned to appeal to that market.

If you combine this with the relatively private nature of the allocators, it makes for a fairly nebulous cocktail. This is where the story gets interesting. As we alluded to in the last blog, positioning is important. You may have noticed I rarely discuss the inner workings of Murano. The reason for this is because these blog pieces are meant to coach (or bicker, wax lyrical, rant or other fortés in the arsenal) and not to sell. However, this time it is hard to separate the two.

Everyone has problems. Deal with it.

It doesnt matter if you are large or small, niche or mainstream. Everyone has a challenge.

Large managers have to prove that they can deliver returns in line with their peers. The larger you get, the more challenging performance becomes.

Small managers deal with the polar opposite – they have good returns (hopefully), but lack infrastructure.

Generic products like long only, benchmark hugging equity managers compete on price. Everyone buys them and it is hard to differentiate.

Niche products compete for a smaller investor base. If the product is too narrow, then the investor base is limited and finding those investors is costly.

Working with this grid becomes a challenge. You can see a matrix where you have niche/generic fund on the x-axis and new/established on the y-axis. The most difficulty we have experienced is in the generic/new quadrant.

Some takeaways

With that in mind, we have found the following takeaways when working with our clients. Some are obvious, but still worth mentioning:

- There is an investor for every fund. We have always steered away from surveys because most Cap Intro teams and databases have them. Trends are flavours – it doesnt mean that if your asset class is not favoured that you dont have a seat at the table. There is an allocator for every fund.

- Box ticking funds have a larger client base, but that also means that there is a lot of time and expense identifying and placing capital. In other words, there are a lot more meetings, but the yield is lower because it is a crowded market.

- Niche funds naturally have less interest. However, that interest is a bit more genuine when you find the specialist investor.

The trick is to be at the sweet spot. What we mean by this is to have an appeal that markets the fund. Oddly, most managers have a hard time identifying this sweet spot and where they lie in the pecking order. What makes the fund different and interesting?

Asset managers outside of the long only world dont tend to rank themselves or know the other fund managers that they are being compared against. We have also found that managers dont really understand the allocators’ motivations. Why did an allocator decide to invest with them as opposed to the myriad of other funds?

Long story short(er)

• Identify your usual suspect
• Find out why you get or dont get the allocation.
• Improve.
• Rinse and repeat. The sooner you know why you have a client base, the cheaper client acquisition will be.

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