Original post on Investopedia.
With an increasingly competitive fundraising environment, customer centricity is playing an ever-important role in the services that asset management firms provide. Taking care of existing investors should no longer be considered peripheral to portfolio management, but viewed as a critical service for managers seeking to successfully acquire and retain high net worth clients. The quality of nonperformance-related functions, such as investor relations and marketing, is now considered a differentiating factor for asset managers competing to capture investor capital. Below are three strategies managers can adopt to manage their clients more effectively in response to the changing face of investor relations.
Look Past the Numbers
While generating alpha is critical, firms need to evolve beyond a transaction-based relationship with investors in order to rebuild trust with their clientele. The financial crisis led to a highly dissatisfied investor base demanding increased transparency and alignment of interests. The following statement from Judith Poskinoff, co-founder of the fund of funds firm Pacific Alternative Asset Management Co., encapsulates the current sentiment: “I think performance is critically important. But I will pass on a top-decile fund for a fund with more flexible and better terms and more transparency.”
In response, many prominent hedge funds formerly notorious for their opacity revised their IR and risk management strategies to accommodate the shifting priorities of their clients. Exemplifying this are some of the top ranking firms in Alpha Magazine’s 2015 Hedge Fund Report Card. For instance, TCI, Citadel, and Magnetar Capital have adopted more investor-friendly policies following the crisis. Creating more favorable liquidity terms, providing access to the investment team, and establishing online investor portals are just some of the many initiatives that have contributed to their rise in rankings over recent years. Additionally, more multibillion dollar firms are hiring full-time PR hires to attract and retain investors with clear and consistent messaging. Such firms were able to successfully identify and adapt to the concerns of their investors, and in doing so, significantly improved their reputations.
Build a Brand
More often than not, good performance is a prerequisite for acquiring new investors. However, brand power enables asset managers to build businesses that last. A comparison of the largest hedge funds in the world and top-performing hedge funds quickly shows that there is no overlap between the biggest and the best. All hedge funds will experience good and bad performance years over time, but the ones that create a brand of trust and exclusivity are the ones that don’t experience significant capital outflows during those off-years.
Brand valuation, then, is just as important as metrics when it comes to acquiring new investors and retaining current ones. For decades, public companies have utilized logos, taglines, advertising, social media, interviews, and events to build marketplace awareness and establish “blue-chip” reputations. Firms can now compliantly establish digital footprints through new marketing rules permitted by the JOBS Act and the sprouting of online platforms; it’s time for managers to adopt a strategic approach to marketing and brand creation.
Adopt New Technologies
Globalization and new opportunities across geographical borders require tools to streamline processes involved in onboarding and managing investors. Unfortunately, many firms today suffer from paper-intensive, manual processes that prevent capturing client details in an efficient and compliant manner. Since many of these processes require coordination between disparate departments (sales, investor relations, compliance), they are also prone to error. The results are onboarding delays, constant back and forth between the firm and investor, and an undesirable exposure to reputation risk.
Automated workflows and a common user interface for sending and receiving client data do much to alleviate these issues. Inbuilt identity verification, digital signatures, and compliant access to sensitive offering materials not only minimize the number of touch points an investor has to undergo, but also centralize all interactions between firms and their clients. The overall result is a more satisfied investor base as well as a significant reduction in time-to-value for all parties involved.
DarcMatter (“DM”) is a global fintech platform that streamlines the capital raising process for asset managers and provides investors with transparent and direct access to funds in the asset management industry.
DM’s mission is to enhance capital flow through fintech to create transparency and efficiency by providing direct access to funds in the Asset Management industry for Accredited Investors, Advisors, and Asset Managers.