The term ‘marketing’ as used in the Alternatives space has a different meaning than in just about any other industry. Usually, Marketing involves brand development, advertising, promotion, market research, communications strategy and visual / graphic production. But in the Alternatives space ‘marketing’ has been much more closely identified with sales and with relationship management – quite literally, selling a fund to the market.
That definition worked well enough when there were 100 funds instead of 10,000 and when investors actively sought out fund managers who were producing prodigious alpha. But in 2017 the industry has become far more competitive: less than 10% of funds receive virtually all the new money entering the sector each year, and simply getting in front of an allocator is now a very long and difficult process.
So the meaning of ‘marketing’ in the Alternatives space has to change – and there are some signs that the change has begun. The word “branding” has already entered the lexicon, and some managers are scrambling to create a brand that can provide them with an identity. A greater emphasis is being given to digital tools to reach more prospects more efficiently. You can now find hedge fund and PE websites that are equipped with videos; blog posts and other downloadable content; and even (gasp!) Twitter feeds.
When Baupost, the $30 billion Boston-based hedge fund now managed by Seth Klarman, was founded in 1982, it was launched with a core set of aims. Q4 2021 hedge fund letters, conferences and more Established by Harvard professor William Poorvu and a group of four other founding families, including Klarman, the group aimed to compound Read More
This approach to marketing seems contrarian for many managers in this industry – but in fact it’s simply catching up to contemporary marketing practices in virtually all other businesses.
Is your view of ‘marketing’ up to date? Is your ‘marketing’ still really a sales function? Are you ready for this new Marketing environment? When you open the throttle will you accelerate smoothly into the fast-moving traffic – or will the marketing engine sputter and cough and leave you stranded on the side of the road? Here are three questions you should ask your team – and to ask yourself – that will provide some insight as to whether or not the needed horsepower is available.
1.WHAT DO WE DO BEST?
Great Marketing starts with fundamentals – and communicating clearly, accurately and in a compelling fashion is step one. But read the question carefully – it’s not asking for just a description of what you do. The key is being able to describe what you do that’s better than the way anyone else does it. So, ‘We’re a real estate private equity firm’ isn’t going to make the grade. A better statement is: ‘We invest exclusively in high-end residential housing redeveloped from former factories in the rapidly gentrifying Cincinnati, Ohio market.’
2.WHAT ARE OUR TOP 3 POINTS OF DIFFERENTIATION?
This is all about defining your ‘edge’ – and it’s harder than it looks. Most people don’t have trouble coming up with six or eight items which they believe define their edge; the hard part is narrowing the list down to two or three that truly differentiate you. Here’s a hint: ‘managing risk’ is not edge. Would you choose a surgeon whose primary claim is that he’s ‘really, really careful’ ? Similarly, ‘experience’ and ‘pedigree’ are important factors – and quite necessary – but they’ve become just table stakes: necessary but not sufficient to set you apart from the crowd. The PE fund manager that can say ‘we meet with 200 prospective portfolio companies every year, and we invest in 2’ is demonstrating edge in their ability to source opportunities, and in rigorously winnowing down the list.
3.WHO IS OUR AUDIENCE (AND HOW DO WE FIT INTO THEIR PORTFOLIO)?
Marketing needs to be precise and targeted to enable sales to be successful. Exactly who wants your strategy? It’s not enough to just say ‘investors’ or ‘institutional allocators’ – those are broad categories, not precise targets. If Chevrolet and Honda described their target audience as ‘people who drive cars’ then the Corvette and the Odyssey would be interchangeable among the same target audience. Clearly they’re not; they’re each very well suited to a very different segment, and trying to market either one to the opposite segment is an exercise in futility. Your target description needs to be phrased in the language of a potential LP or allocator: ‘we are a CTA global macro fund providing investors with deep insights into European market trends from our strategic location in Brussels.” You can’t – and shouldn’t try to – meet the needs of every investor. Instead, proclaim your strengths and work toward dominating that slice of the market.
How well did the team – and you – answer the questions? If your firm is like many in the alternatives space you probably earned 1/2 credit on one or two of these questions. Remember, ‘marketing’ in this industry hasn’t evolved much in the last few decades. While mass merchandisers were using sophisticated technology to track customers’ eye movements as they scanned display shelves, fund managers were still sending around the same 36-page cookie-cutter PowerPoint decks that they were using 10 years earlier. When restaurants began using geolocation tools to increase spend per patron, fund managers had only progressed to using .pdf versions of the same 36-page decks. Today, the alternatives space is still using the same basic pitchbook that it was using in the ’90s (and there’s not much comfort in emphasizing that it was the 1990s; it might as well have been the 1890s).
So what do you do now? First, get clarity around your value proposition. Make sure that it speaks to the needs of your intended investor, and that it emphasizes what your firm does best. Second, identify two or three attributes that set your offering apart from the rest of the managers who also claim to do exactly what you do. Third, precisely define your audience: you don’t have the resources to waste on prospects that are not clearly in your target zone. These steps are easy to understand, but not very easy to do. Get help if you need it (visit www.meylercapital.com to learn more about how the industry is being disrupted) ; there are people out there who specialize in this kind of work.
With this approach – and some time spent building your brand – you might just turn your ‘marketing’ team into a Marketing team.
Article on marketing in the alternatives space by Joe Bartolotta