In many ways, the institutional investment market is more open than ever before. Regulatory changes, the increasing complexity of markets, the rise of alternative investment classes – the evolution of the industry has seen all but the smallest funds ditch the “single balanced mandate with a household name” model for various diversified manager portfolios.
Even in the UK, dominated by the investment consultancy sector - a key part of that evolution, but now often criticised for restricting investors’ choices - opportunities abound for the specialist or boutique asset managers to put their product before potential buyers.
“Ten years ago you would expect an investment manager to approach the investment consultant before approaching the client,” says Chris Erwin, investment principal with Aon Consulting. “I think we have proceeded quite a long way from that into a more co-operative environment in which investment managers will also approach clients directly.”
Of course, that opportunity can cut both ways.
“I’ve been on our board for 10 years,” reflects Luke Howe, executive director of the Chicago Park Employees’ Annuity & Benefit Fund. “I’ve seen a lot of good sales people, as well as quite a few who could use a little tuning-up.”
His main suggestion to those who are playing off-key: don’t be too aggressive. It suggests either that you do not have real confidence in your firm, or that you are under pressure from your boss because no one has bought any product from you all year. Furthermore, it’s just plain irritating.
“These conferences are great for the exchanging of ideas and making new contacts,” he says. “But I’ve had people come up to me at 11:30 at night, there’s a room full of people, everyone’s having a great time, and all of a sudden someone has pinned me in a corner and started talking to me about their product. You have to be kidding me, right? Let’s speak about it in the morning.”
Keep it simple
Pitching the right kind of information at the right time is not just a matter of tact, but of getting the sales message across in the most efficient way. Conferences in general – not just the cocktail parties – are for introductions and exchange of very basic information in preparation for a follow-up meeting back in the office environment.
The same is true for voicemails and emails, especially cold calls. Remember that the hard-pressed pension fund manager probably has 10 more messages waiting behind yours, and that if you attach book-length presentations on your product to emails, investors are unlikely to read beyond the first page. The thought of hooking a bonus-fattening deal as year-end approaches can make this approach tempting – but you are unlikely to get institutional investors to act on your timetable rather than their own.
“You need to be respectful of our time, but more importantly, what is it you are trying to achieve?” asks Mr Howe. “You want to make an impact – and the best way to do that is to keep it all up-front and brief. Give me a two-pager with the performance numbers and the risk analysis and that’s more likely to elicit a response, or get forwarded to our consultant.”
Once you get the opportunity to present to a potential investor, don’t be tempted to stick with the one-size-fits-all pitch. Michael Viteri, manager of portfolio & trading strategies at the Arizona State Retirement System, recommends preparing three versions timed at 15-30 minutes, 60 minutes and 90 minutes to suit different opportunities that may arise.
He also suggests breaking the presentation into modules devoted to different aspects of the firm – its history, its product range, its investment philosophy – so that you can focus on the areas of most interest to the potential investor. This can engender a sustainable interest in your firm even if a particular product is not right for them at the time.
“Learn about our fund, do a little research, ask us questions about what we are trying to achieve,” says Mr Howe. “If you have a product that we’re not interested in at this time, don’t barge ahead with the sales presentation, but don’t give up on us. I’ve had friends in this industry for 10 years and in some cases I’ve never hired them, just because of a timing issue. This is a marathon, not a sprint.”
Penny Green, chief executive of the Superannnuation Arrangements of the University of London (SAUL), agrees.
“You have to accept that it’s a long game. There are people at this conference whom I’ve known for years who are still waiting for the right allocation to come along that would suit them,” she says. “But we also have a history of maintaining long-term relationships with managers – 13 or 14 years is not unusual.”
Building up trust
If you’re waiting for 10 years, that’s a long time for any dishonesty to get found out. More importantly, candour is prized as a sign of a serious relationship that would work well as a partnership in business. If an investor you know talks to you about a potential allocation in an area your firm covers, but which you feel is going through a soft patch, do not be afraid to admit it.
“Trust is hard to come by, and a statement like that goes so far,” says Mr Howe. “I know your front office won’t thank you for it, but it can remain between us - ultimately it’s your reputation that’s on the line. When we talk about it again two years down the line and you say, ‘You know what, we’re in a really good place right now,’ it holds so much more water.”
To do that, a business development manager needs perfect understanding of the investment strategy he or she is selling. That’s just one example of the kind of joined-up approach to client relationships that investors appreciate.
Unfortunately, the real world is rarely joined-up, and sometimes it can get downright territorial: that 10-year friendship may be with the business development manager, but the investor’s consultant might be getting a more aggressive or upbeat pitch from the consultant relationship manager, and when the deal gets struck, both will probably hand over to a client relationship manager.
“If that team isn’t communicating well you can end up with two or three different stories floating around and things can get kind of choppy,” says Mr Viteri.
For Ms Green, a good transition is all about the quality of the relationships. “Don’t sell your product – sell your relationship,” she advises. “You will fail to make a sale or maintain a mandate if you don’t understand that.”
“From my personal perspective, it makes a difference if the business development manager stays in touch once the mandate has gone to the client-relationship stage, but I also like to know who the CRM is going to be before I approve an allocation, because I know from experience that the chemistry needs to be right,” says Ms Green.
“We have to enjoy one another’s company. When performance is falling off the strength of the relationship becomes particularly important for enabling the trustees to give you a chance to turn things around.”
Maintaining client relationships is about putting as much store in your client’s individual needs after the mandate has been awarded as you did before. That means understanding that there will be concerns about capacity in the product you have sold them, and that focusing on acquiring more and more clients may not be the most tactful way to address those concerns.
It also means tailoring reports to the profile of your client. If that client is a small pension fund, less can be more: again, these investors may not have time to pore over granular
performance attributions. Their consultants will be more grateful for that information, and some of the larger institutional investors employing internal asset managers will require it for risk management.
But proper reporting is also as simple as reporting performance against the target that has been agreed, rather than reverting to the benchmark when the alpha isn’t there. “If the target is FTSE All-Share plus 2 per cent and you report against the FTSE All-Share we will get suspicious,” says Ms Green. “We aren’t stupid, we can count to two, so be honest and focus on the target.”
Crucially, if things are not going well, or if the investment process governing a mandate has to be changed, it is important to be up-front and available – and that preferably means every professional who has been involved in the relationship, from business development to portfolio manager.
“If you’re not doing so well, come and talk to me,” says Ms Green. “Only then can you give me a coherent explanation as to why that is and when you expect to turn it around. And don’t change your process – but if you really have to, make sure you take us with you. You may not keep us as a client: the chances are that you will, but I can guarantee that you won’t if you change your process and don’t tell us.”
Of course, everything falls into place if both parties truly see the mandate as a partnership – and that is the Holy Grail that every investor seeks. “We need each other,” says Mr Howe. “At the end of the day we have a fiduciary responsibility to our fund, but I feel we are all morally responsible to the ultimate benefactors of our funds, the people whose pensions we set out to provide, and we need to work together as a team. We need you to help us to help you to help us help our members.”
