The following post is courtesy of Diane Harrison who is principal and owner of Panegyric Marketing, a strategic marketing communications firm founded in 2002 specializing in alternative assets.
With the 25th anniversary of 9/11 highlighted this month, and our daily news reports centering on the battle for AI domination and what ongoing actions are with Iran, it occurred to me that conflict is a daily part of life, and tactics to deal with it always topical.
When focused on investment management, opportunities to minimize or neutralize certain forms of conflict can support negotiating your way to successful asset raising, across all forms of investment strategies. Let’s identify some of these common conflict struggles and how to recognize them in the sales process.
PRIORITY DIFFERENCES
When initial prospecting meetings are set, it’s clear what the salesperson goal is- to get to a yes. But the prospect’s goals are not yet established- are they dissatisfied with some element of their investment plan? Are they looking for a particular strategy to add to their portfolio? Do they want to boost their overall gains? Asking the right questions at the outset can help steer the conversation in the right direction from the prospect’s perspective.
BOUNDARIES ESTABLISHMENT: RISK/REWARD
It’s obvious that everyone wants to maximize return while minimizing risk. The tricky part in every negotiation with investors is determining the balance between the two, based on the individual’s goals and tolerances for risk. Add in that each strategy in a portfolio likely carries a different risk/reward ratio, and that the overall portfolio needs to balance out at the desired level for the individual, and it becomes a complex equation. Getting to a solid understanding of what each investor is comfortable with in their risk/return outlook is key to building a successful allocation plan.
TIME VS. LIQUIDITY
How soon/how often/how much an investor needs access to their investment monies can quickly narrow down suitable certain investment options for a prospect. Many strategies are desirable because they provide ready access to redemption, and investors are willing to forego higher returns for this advantage. Other investments require investors to leave their monies for longer periods of time, based on the strategies invested, such as real estate investments and other alternative asset funds. Most sophisticated investors build both forms into their portfolio to accommodate their particular needs. Sales people who get a good sense of this mix can offer better investment options to strengthen this planning.
BIASES AROUND ACTIVE VS. PASSIVE STRATEGIES
Many investors dislike investment practices that involve lots of buying/selling from the money manager to achieve the desired result. A belief exists, often accurate, that transactional costs associated with such heavy action can erode potential longer-term gains. There is a wealth of data suggesting that an overwhelming percent, roughly 90%, of active investment fails to beat the market index return, passive investing, over a 10- or 20-year period. But that leaves the elusive 10% of active money managers who can and do beat the index returns, and therein is the investment ‘carrot’ some investors are willing to chase.
FEES VS. UNDERSTANDING NET RETURNS
The fallacy that high fees are always bad and low fees are always better continues, even in the face of evidence to the contrary, in some instances. While many times, compounding higher expense fees and transactional costs can erode value over time, there are always exceptions. Some managers in niche strategies or who specialize in uncorrelated return investments that move differently from major markets are able to generate consistent outperformance, or investment alpha, despite charging higher costs in their fee structures. The key for investors is to do their homework on finding these stars and avoiding those who don’t consistently outperform the markets on a net-of-all-fees basis.
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