Institutional investors are increasingly seeking investment solutions to address their investment needs for return, income, risk reduction, asset-liability matching, etc. The shift away from traditional asset allocation means investment managers can no longer expect to sell products classified by traditional labels such as growth, value or core.
Large, multi-asset-class managers are well-positioned to provide customized solutions to fulfill specific clients. While opportunities for single traditional investment strategies still exist, they are limited. How can long-only and specialist managers compete and survive in a solution-oriented environment?
The answer lies in the messaging. It is essential to link the results of your strategies to client needs. How do you do that? Here are three tips to help you position your strategies effectively in a solution-oriented market.
Know WHAT Your Strategy is Designed to Deliver
Is it alpha, low volatility, income, low correlations, absolute returns, or other outcomes? “Show” versus tell investors the results by developing data that demonstrates your strategy’s historic returns in context of these objectives. If your goal is consistent alpha, show rolling three-, five- and ten-year excess returns. If your strategy offers low volatility, show upside/downside capture of your strategy inception-to-date. If diversification is the deliverable, show correlations of returns relative to peers or other relevant benchmarks.
Be Clear on HOW You Deliver Results
Investors must have confidence in your ability to deliver the promised results. What aspects of your approach or process contribute to the repeatability and consistency of your results? If it is your ability to assess long-term secular trends, and identify industries and companies that will be beneficiaries, give examples. If your competitive edge is stock selection, show performance attribution. If your advantage is capitalizing on market dislocations and volatility to invest opportunistically, cite examples.
Manage Expectations about the WHEN
What is the appropriate investment time horizon over which your strategy can be expected to deliver results? You want to attract clients who are a good long-term fit. That means their horizons and your own must be aligned. If your strategy’s investment horizon is 3 to 5 years or 7 to 10 years, it is important to communicate that to your clients and make sure they understand. If short-term periods of underperformance can be expected, show the past experience or circumstances likely to cause shortfalls.
Institutional clients do not like to be sold, they prefer to buy. That means you must do your homework to understand as much as possible about a prospective client before you begin a dialogue. If a corporate or public fund plan, do they have a significant funding gap? If an endowment or foundation, what are their income requirements? Are they in the news; e.g., moving all their assets to passive? When you do connect, you need to probe with relevant questions to confirm priorities, and understand asset allocation and manager selection policies. Are they planning any changes to their asset allocation policy? Are they receptive to active management? Are they fee-sensitive? You can then determine whether your investment strategies and firm will be a good fit. If so, you are equipped to have meaningful dialogues about how your firm can partner with the client to provide investment solutions for one or more of their investment needs.
Do you have any suggestions for how to strengthen your firm’s competitive position in a solution-oriented environment? Please comment below and share this article if you found it helpful. Stay engaged by following Charnley & Røstvold!
Charnley & Røstvold, Inc., a preeminent marketing consulting firm to asset management firms ranging in size from start-up firms to some of the world’s largest investment firms with over $1 trillion under management. Charnley & Røstvold helps clients with competitive positioning, marketing strategies, key messages, presentation refinements, communications and sales training, consultant relations and client service programs.
Christine Røstvold, co-founder of Charnley & Røstvold, Inc., is a popular industry speaker and author. Christine was a founding board member of PAICR (Professional Association for Investment Communications Resources), and served on the Advisory Board for more than a decade.