How the best asset managers are securing investments with data-driven technology

Over the last 20 years we have helped large and small asset managers solve marketing and distribution challenges, learning many lessons along the way. In this edition of Oversubscribed, we explore the importance of channel-specific fundraising strategies for first-time funds. 

In any environment, fundraising efforts are a difficult undertaking. For emerging or spin-out managers with new investment vehicles, it can be exasperating. Success requires a manager to stand out, making their initial marketing and communication efforts as important, if not more, than the investment performance of the strategy.

Well, we know where we’re going, but we don’t know where we’ve been…

Remember the Talking Heads… Remember the “Road to Nowhere”? Over the years, that song seems to play in my head when meeting with experienced asset managers who are spinning out of a firm to launch their own fund. While adept at running at strategy execution, they have actually never had to raise the capital they manage. The old adage, “they don’t know what they don’t know” often rings true. It’s funny (or frustrating), regardless of experience, we see asset manager make the same mistakes repeatedly, setting course on a road to nowhere. The following is a scenario we have seen with regularity:

Spinning out: Introducing Manager X

Over the last decade, portfolio manager X has developed and perfected a repeatable edge, establishing a great reputation and track-record for consistent alpha generation, developing a loyal fan base along the way. Manager X is fired up… chomping at the bit to tell the world what they are up to. However, rather than take the time to think through a marketing strategy, compile supporting research and collateral, build a data room, and complete a due diligence questionnaire, they quickly assemble a pitch deck and set out on the path to attract fund dedicated capital.

Mistake #1: Turning prospective investors into fundraising consultants

The first step… reach out to previous investors and previous business associates to share the news, with the hope of getting early commitments. Sadly, reaching out to an existing network prematurely can turn a warm audience cold. Armed with half-baked marketing materials and a difficult to explain story, Manager X turns investor meetings into discussions around improving their presentation and marketing material.

In the blink of an eye, Manager X goes from being viewed as a strategy expert to a struggling marketer, while exhausting the leads once considered low-hanging fruit. And sadly, creating a lasting impression of inexperience, rather than sophistication with a once loyal following.

Mistake #2: Shifting from a focus on personal relationships to marketing to the masses

Disappointed, but not deterred, Manager X transitions to the next most common tactic… mass marketing. Heeding the advice received from declining allocators (as opposed to seeking counsel from experienced marketers), Manager X cobbles a list of potential investors to widen their net of potential investors.

Next, Manager X crafts a generic, transactionally focused message, attaches a pitch deck, and begins to blast out uninvited requests to the masses. However, it doesn’t take them long to encounter their first problem, a bounce-back rate of 43% and an unsubscribe rate of 18%. Manager X realizes the list is stale and antiquated and heads back to the drawing board.

Mistake #3: Misunderstanding the value of a list without relationships

While unhappy to be forced to purchase quality data, Manager X bites the bullet and purchases a clean list of fund investors. With renewed hope and enthusiasm, he proceeds to blast out the same uninvited solicitation (and attachments) to 4,500 random investors. “You know, it’s a number’s game” he tells himself.

Now, with the goal of finding 5-10 willing investors, manager X begins to follow up his mass solicitation. However, he quickly learns that, in the absence of relationships, quality prospect data has very little value. Unfortunately, the uninvited solicitations and cold call follow-ups produce few meetings and even fewer capital commitments. 

Mistake #4: Reaching out to an expert after its too late

Now what? Recognizing the need for a professional approach, Manager X decides to bite the bullet and sets out to engage a marketing partner. After researching options, the manager realizes that there just aren’t many placement agents or third-party marketers willing to take on managers raising a first- or second-time funds. But hope is not lost, Manager X finds three firms willing to consider the engagement. However, after making a few calls, all three decline.

Why? Because the only thing harder than raising first-time fund capital is trying to raise first-time fund capital for a manager that has already scorched the earth with uninvited solicitations. Overcoming the reputational damage is just too much for any marketer.

Mistake #5: Believing performance will overcome lack of capital

Not ready to throw in the towel, Manager X decides to invest the small amount of committed capital (a pittance of what was planned) with the hope of overcoming future fund objections with great performance. Unfortunately, putting up great numbers with little capital only invites a new set of objections: Why didn’t anyone invest in fund I? Is the strategy scalable? What am I missing? Simply put, first-time managers rarely get second chances.

The Lesson: Do it right the first-time

While it can lead to a few successful results, this “quantity over quality” fundraising approach leads to long-term brand-damage to the firm and its managers. Suffice to say, especially in the age of data-driven marketing, thoughtlessly blasting information and uninvited solicitation is a decision that can be tough to overcome. We suggest doing it right the first-time.

Recommendation #1: Understand your audience

Put the shotgun back in the closet and grab the rifle. Begin by identifying the most viable/likely prospects. This will help reach those that will be most interested in hearing about the manager’s strategy. This requires thoughtful research on the LP community to create an investor profile, or persona, representative of a allocators with a history and inclination to invest in the manager’s strategy. The persona data allows managers to properly position the strategy, messaging, and marketing collateral for specific investors. With these detailed personas in place, building a database of qualified prospects becomes a much easier process.

Using digital technology to dynamically personalize marketing and communications will reach the right investor with the right message at the right time in the right place. This kind of personalized strategy can be automated to guide the prospect through the journey, up to the point of face-to-face meetings.

Recommendation #2: Treat every engagement as a branding moment

Consistent, personalized, and meaningful follow-up is important to the long-term brand of the firm, as well as to future fundraising efforts. Even though many said “no” to fund I, they instantly become spokespersons, for the brand of the manager. The investment world is a small one and word travels fast. Savvy managers will ensure that investors who declined to invest this time around, will deliver positive feedback on managers who have gone the extra mile in before, during, and after the fundraising process.

The goal is to begin to create relationships with people that eventually become brand and strategy evangelists. Treating everyone as a potential evangelist will leave the door open for future conversations. By treating every engagement like a branding moment, managers will develop a rapport that can play a role in future success. Having a well-prepared and defined approach to conversations will often lead to subsequent conversations in the future.

Treat every moment like a branding moment.

The Conclusion: Invest the proper time, energy and resources in your outcome

At 5150, we believe the best way to approach fundraising is with patience, discipline, and a long-term outlook on relationship management. Managers who take the time to do it right win. Dedicating the appropriate energy to define the market, dial-in the messaging, and treat every engagement like a branding opportunity will pay dividends both short and long term. Every action taken will influence future decision-making by those considering investing… positive or negative. Poorly conceived marketing, communications, and fundraising are a direct reflection on the manager and the firm.