By Diane Harrison, Panegyric Marketing -- Enough already with the endless discussions about how hard it is to raise money in these “challenging markets” with “increased regulatory pressures” and “correlation convergence.” Whoever said it was easy to stand out and succeed in this cutthroat alternative environment? If you’re an established player, you are likely coasting on your past performance returns and maintaining a substantial asset base, or you’re outperforming and generating real interest in what you offer now to those with capital to invest. That’s great, once you’ve arrived, but that doesn’t mean there isn’t room for true talent to rise to the occasion and find success as well.
If you’re a smaller manager or newly emerging, it’s time to step up to the plate and take a swing at asset-raising. Two thousand twelve is the year to find out if what it is you’ve convinced yourself you can do better than those already established will close the deal with those looking at alternatives to deliver value. Here are some reasons that should encourage you to make the case for your approach with these investors.
Money will be moving out of traditional asset classes and looking for a place to go: The alternative sector offers an opportunity to both reduce risk and increase upside potential beyond the safety net of sitting on cash. While this is not news, it is getting more attention from investors who are motivated to reduce their holdings in equities and fixed-income, real estate, and hard assets and to find alternative, non-traditional means of diversifying.
There is an actual mandate for professional investors to identify and partner with small managers: This year saw a real validation of this mandate in the flow of new investment activity towards managers in the emerging category. If you are an emerging manager with a strong performance pedigree from your past, an infrastructure that supports the growth new investment means for your business and a management game plan that addresses the personnel requirements to scale, it is game on for your chances to garner serious interest.
Advisors and consultants will focus renewed interest on finding the next talent pool in alternatives in 2012: Their client base is driving the need to provide new sources of talent and capacity combined with flexibility and transparency. Emerging managers would be wise to facilitate the review process and relationship development with these key players who can open doors to investors previously inaccessible to new managers.
Family offices are getting more serious about diversifying their investment allocations: Emerging managers will need to embrace the process of getting in front of many, many family offices and making their case for investment. The good news is that the educational process can support and drive some real concrete investment discussions leading to significant relationships. If you can combine capital preservation with alpha generation and tell that story convincingly, family offices will listen.
There is no clear strategy or approach that trumps all others: Next year will be a period of equal opportunity for alternatives like none other in recent history. Unlike in the past, when a particular strategy could dominate industry performance results and investors’ focus for months at a time, 2011 proved to be the year of underperformance across strategies and sectors. As the presidential election in the U.S. continues to both weigh on and distort broad market activity, there is no obvious strategy that will dominate the alternative space heading into 2012. It will truly be an equal-opportunity year in which to distinguish oneself in terms of market performance.
The competition is fierce: This means survival of the fittest—there will not be room to play for all the wannabe-managers once their start-up capital is spent. As the population of funds declines and 2012 sees a precipitous drop in the number of funds, the opportunities for truly stars to get noticed will rise.
The due diligence process is not going away—embracing it early on can work to make you a stronger candidate for investment: Along with the additional interest in alternatives comes tighter scrutiny on the vetting process. Emerging managers who pay attention early on to this necessary and essential step can leverage the evaluation to separate themselves from the herd. It makes no sense to dread or seek shortcuts in the due diligence process. Embrace the experience and be prepared to make the process a credit to your worthiness as an investment partner.
The educational forum for alternatives is becoming more populated and competitive, hence more widely followed: With greater interest in finding ways to generate value and performance returns, opportunities in the public forum to get noticed will be bigger than ever in 2012. Emerging managers should develop a plan early in the year to identify appropriate opportunities for getting in front of the audience they hope to influence and attract interest to their approach. Conference forums, roundtables and focused speaking opportunities, targeted interviews and publishing opportunities within financial news channels can all work to attract interest to your overall marketing effort.
Small managers who promote their ability to leverage nimbleness in 2012’s less-covered markets will attract investors looking for new ways to achieve alpha: Distinguishing your business from the hedge fund giants who have legacy positions and move markets will become even more attractive to investors in 2012. Smaller managers who focus on sifting through less-trafficked data and information can unlock value in the markets that analysts and industry news finds too small to pay attention to on a regular basis. If your approach takes advantage of this situation, showcase how you go about identifying those opportunities when defining your edge.
Strategic outsource partnerships are growing to bolster the strapped internal resources of smaller managers: Next year will be a do-or-die year for emerging managers. If you don’t have the bandwidth to get the job done, identify what resources you need and utilize them. With somewhere around 8,000 funds out there, there is no room for mediocrity. If a manager doesn’t have the in-house resources available to execute a strong marketing effort, partnering with outside professionals will be essential to ensure success. It will not be enough to post returns on a database and hope for inquiries. A proactive and consistent effort is the only way to approach the alternative sales process, particularly in 2012.
Emerging managers will need to thrive to survive in 2012. Getting to critical mass in assets under management is a key component of that dynamic. Every effort in a smaller manager’s business needs to be at peak—performance in strategy, operational excellence and asset-raising to target and win over the right investor base. Failure on any of these platforms will spell the demise of an emerging manager. But those managers who embrace the process and direct the effort in a smart and targeted way stand the best chance of capitalizing on investors seeking alternative options in 2012.
Diane Harrison is principal and owner of Panegyric Marketing, a marketing communications firm founded in 2002 and specializing in a wide range of strategy and writing services within the alternative assets sector. She has over 20 years’ of expertise in hedge fund marketing, investor relations, sales collateral, and a variety of thought leadership deliverables. A published author and speaker, her work has appeared in many industry publications, both in print and online.